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Dr.  Gordon  Watkins 


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ELEMENTARY 


POLITICAL  ECONOMY 


y     \  BY 

A.  B.'^MESERVEY,  Ph.D. 

PRINCIPAL  OF  NKW  HAMPTON  LITERARY  INSTITUTION,  NEW 

HAMPTON,  N.  H.  :     AUTHOR  OF  A  TREATISE 

ON  BOOK-KEEPING 


BOSTON 
THOMPSON,  BROWN  &  CO.,  PUBLISHERS 

NO.  33  KAWLEY  STREET 


>  '''  '■ 


Copyright, 

By  a.  B.  Meservky, 

i88<;. 


Electrotvpkd  by 
C.  J.  Peters  &  Son,  Boston. 


PREFACE. 


Of  all  the  sciences  Political  Economy  is  one  of 
the  most  important.  It  is  the  foundation  of  public 
and  private  prosperity.  Hence,  every  person  who 
is  to  be  a  citizen  of  this  Republic  should  have  a 
good  knowledge  of  the  elementary  principles  of 
Political  Economy.  It  should  be  one  of  the  pre- 
scribed studies  in  the  public  schools,  but  it  has 
seldom  been  taught  outside  of  colleges  and  the 
higher  seminaries.  It  has  always  been  considered 
a  most  intricate  subject,  and  hence  to  be  attempted 
only  at  the  close  of  a  long  course  of  study ;  but  it 
does  not  seem  possible  that  a  science  of  such 
importance  can  be  too  difficult  for  common  people 
to  understand. 

May  it  not  be  that  the  trouble  is  with  the  text- 
books rather  than  the  subject  ? 

The  old  treatises  are  full  of  statistics,  discus- 
sions, theories,  opinions,  hypotheses,  and  argu- 
ments ;  but  these  are  worse  than  useless  in  a  text- 
book of  elementary  principles.  It  seems,  therefore, 
that  there  is  need  of  a  work  on  Political  Economy 
which   shall  be  elementary,  plain,  simple,  easy ; 


IV  PREFACE. 

and  which  can  be  comprehended  by  pupils  of 
average  ability. 

The  author  has  endeavored  to  supply  this  de- 
mand in  the  following  pages.  He  has  presented 
conclusions  rather  than  discussions,  facts  rather 
than  theories,  principles  rather  than  hypotheses. 
In  regard  to  disputed  questions — like  the  tariff — 
reasons  pro  and  con  have  been  given,  and  the 
learner  left  to  form  his  own  opinions. 

The  author  claims  no  originality.  He  has 
simply  compiled,  from  sources  considered  reliable, 
a  text-book  which  he  trusts  will  prove  a  welcome 
assistant  to  teachers,  and  a  help  to  students.  He 
has  tried  it  in  the  class-room,  and  is  satisfied  that 
it  is  not  too  difficult  for  comprehension  by  students 
of  ordinary  capacity. 

The  author  would  also  take  this  occasion  to 
thank  those  who  have  given  so  hearty  a  welcome 
to  his  "  Book-keeping,"  and  would  express  the  hope 
that  their  opinion  may  be  as  favorable  in  regard  to 
the  following  pages. 


CONTENTS. 


INTRODUCTION. 

Definitions.  Political  economy.  Difference  between  political  econ- 
omy and  politics  explained.  Intrinsic  value.  Commercial 
value.  Illustration  of  the  difference  between  the  last  two  terms. 
Money.  Worth.  Cost.  Price.  Wealth.  Labor.  Capital  — 
quick,  permanent,  productive,  unproductive.    Capitalist      .    .    .     1-4 

CHAPTER   I. 

WEALTH  OF  SAVAGES. 

Labor  necessary  to  produce  wealth.  Among  savages  consumption 
rapidly  follows  production.    Hence  they  possess  very  little  wealth,     5-6 

CHAPTER   II. 

WEALTH  OF  SHEPHERD  TRIBES. 

Hunger  teaches  the  savage  a  useful  lesson.  He  abandons  his  mode 
of  living  and  becomes  a  shepherd.  His  food  the  flesh  of  the 
domestic  animal.  He  has  no  permanent  home.  His  wealth  not 
abundant 6-8 

CHAPTER   III. 

WEALTH  OF  AGRICULTURISTS. 

A  nomadic  life  does  not  satisfy.  Men  become  tired  of  shepherd  life. 
They  build  houses  and  bams.  They  become  farmers.  The  third 
stage  of  civilization 8-9 


VI  POLITICAL  ECONOMY. 

CHAPTER   IV. 

DIVISION  OF  LABOR. 

Labor  the  prime  element  of  wealth.  Among  savages  there  is  little 
division  of  labor.  But  men  have  special  aptitudes.  Farmers. 
Tailors.  Carpenters.  Shoemakers.  Division  of  labor  increases 
with  the  increase  of  population 9-12 

CHAPTER  V. 

Substitutes  for  human  labor.  Domestic  Animals.  Wind.  Water. 
Steam.    Electricity 12-16 

CHAPTER   VI. 

MACHINERY. 

To  apply  manual  labor,  the  tools  and  implements  are  simple.    But 
the   employment  of   other  powers  necessitates   more  elaborate 
machinery.       Bridle.       Saddle.      Steam   Engine.       Telegraph. 
Telephone.    Machinery  increases  production 16-19 

CHAPTER   VII. 

CAPITAL. 

Capital  of  Indian.     Of  fisherman.     Of  farmer.    Wealth  and  capital 

not  synonymous  terms 19-20 

CHAPTER  VIII. 

INCREASE  OF  CAPITAL. 

Circumstances  which  tend  to  promote  the  increase  of  capital.  Loca- 
tion. Nature  of  the  soil.  Climate.  Character  of  the  inhabi- 
tants.    Nature  of  the  government 20-24 

CHAPTER    IX. 

TRADE. 

Direct  trade.  Markets.  Traders.  Exports.  Imports.  Duties. 
Tariff.  Specific  duties.  Ad  valorem  duties.  Restriction  in  trade,  24-27 


CONTENTS.  VU 

CHAPTER  X. 

FREE  TRADE. 

Theory  of  free  trade.     Bible  arguments.    Answer.     Direct  taxation. 
Reply.    Argument  from  benevolence.    Answer     .    .     ...    .    «8-32 

CHAPTER  XI. 
TARIFF  FOR  REVENUE, 

Governments  are  essential.  Taxation  of  some  kind  necessary. 
Tariff.  Difficulties.  Tax  on  all  imports.  Reply.  Tax  luxuries. 
Tax  vices.     Answer,     DifSculties 3^  34 

CHAPTER  XII. 
PROTECTION. 

Theory.  Illustration  from  cotton  cloth.  Difficulties  in  the  applica- 
tion of  the  theory.  Iron.  Lumber.  Sugar.  Protection  leads  to 
over-production  and  finally  to  stagnation 34~39 

CHAPTER   XIII. 
MODIFIED  PROTECTION. 

In  a  new  territory  there  may  be  need  of  protection.  But  there  should 
be  gradual  reduction.  There  may  be  a  time  in  a  nation's  history 
when  absolute  free  trade  may  be  the  best  policy 39-41 

CHAPTER   XIV. 

MONEY. 

Definition.  Substances  used  for  money.  Money  must  have  certain 
qualities.  It  must  be  imperishable.  It  must  be  divisible  without 
loss.  It  must  contain  great  value  in  small  bulk.  Its  supply 
should  be  as  uniform  as  possible.  Gold  and  silver  are  best 
adapted  for  money 42-44 


VIU  POLITICAL  ECONOMY. 

CHAPTER   XV. 

COINAGE  OF  MONEY. 

Lydians.  Romans.  Coins.  Change  of  the  value  of  coins.  Illus- 
tration by  yard-stick.  Change  of  the  standard  of  value  defrauds 
the  debtor  or  creditor *    .    45-48 

CHAPTER   XVI. 

The  dollar,  or  the  unit  of  value.  Shall  the  unit  be  silver  ?  Shall  it 
be  gold  ?  Shall  there  be  a  double  standard  ?  Answer.  Discovery 
of  gold  in  California.  Of  silver  in  Nevada.  There  should  be  a 
readjustment  of  the  ratio  between  the  value  of  gold  and  silver. 
Seigniorage 48-52 

CHAPTER   XVII. 

BANKS. 

Four  kinds  of  banks.  History  of  banks.  Bank  of  Venice,  Bank 
of  Barcelona.     Bank  of   Genoa.     Bank  of   England     .     .     .    52-56 

CHAPTER  XVIII. 

BANKS  OF  THE  UNITED  STATES. 

Bank  of  North  America,  Bank  of  the  United  States.  Second 
Bank  of  the  United  States 56-60 

CHAPTER   XIX. 

STATE  BANKS, 

Objections  to  State  banks.  No  uniformity.  Want  of  supervision. 
Uncertainty  of  redemption.  Failures,  Panics.  Inflation.  Sus- 
pension of  specie  payment.  Reorganization  under  the  National 
Banking  Act 60-66 

CHAPTER  XX. 

SAVINGS  BANKS. 

Why  organized.  When  organized.  State  institutions.  Deposits. 
Dividends.    Managers,    Post-office  savings  banks     ....     66-69 


CONTENTS.  IX 

CHAPTER   XXI. 

UNITED  STATES  NATIONAL  BANKS. 

Corporate  powers.  Organization.  Capital  stock.  Directors.  De- 
posit of  bonds.  Legal  tenders.  Redemption  of  notes.  Destruc- 
tion of  notes.  Loans.  Statements.  Taxes.  National  deposito- 
ries         70-7S 

CHAPTER  XXII. 

TREASURY  NOTES. 

Greenbacks.  Temporary  loans.  Should  be  redeemed  and  destroyed. 
Elements  of  danger     . 78-82 

CHAPTER  XXIII. 

EXCHANGE. 

Specie.  Bank  notes.  Treasury  notes.  Book  accounts.  Promissory 
notes.  Checks.  Certified  checks.  Certificates  of  deposit.  Cash- 
ier's drafts.    Drafts 83-89 

CHAPTER   XXIV. 

RENT. 

Betterments.  Difference  in  the  productiveness  of  the  soil.  Differ- 
ence of  location     , ^9-93 

CHAPTER  XXV. 

INTEREST, 

Formerly  the  receiving  of  interest  was  considered  immoral.  It  was 
illegal     Right  and  reasonable.    Banks  as  loan  agents     •••    93-96 

CHAPTER  XXVI. 

TAXATION. 

Reasons  for  taxation.  Direct  taxation.  Indirect.  Excise.  Cus- 
toms duties.    Internal  revenue 96-101 


X  POLITICAL  ECONOMY. 

CHAPTER  XXVII. 

PROFIT. 

Profit  distinguished  from  rent.  From  interest.  From  wages.  Gross 
and  net  profit.     Amount  of  profit 102-106 

CHAPTER   XXVIII. 

DISTRIBUTION  OF  PROFITS. 

One  party.  Joint  interests.  Manufactory.  Adjustment  of  losses. 
Rules  for  distribution.    Old  World 106-110 

CHAPTER  XXIX. 

JOINT  LABOR  ASSOCIATIONS. 

Capital  and  labor.  Corporations.  Failures,  Poor  managers. 
Losses 110-113 

CHAPTER  XXX. 

INCOME  FROM  CAPITAL. 
Reasonable  interest  on  investment.     Computed  on  real  value.    New 
method.     Bad  in  theory  and  worse  in  practice     .    .     .    .     11 3-1 16 

CHAPTER  XXXI. 
THE  BUSINESS  MANAGER. 
Third  element  in  every  business  enterprise.     Illustrations.     Who 
should  receive  the  net  profit  ?     Why?     Corporations     .    .    11 7-1 19 

CHAPTER  XXXII. 

LABOR. 

Price  of  labor  constantly  changing.  Cost  of  living.  Kind  of  ser- 
vice. Value  of  the  currency.  Demand  and  supply.  Wages  of 
women.   Amount  of  net  gain 1 19-124 


CONTENTS.  XI 

CHAPTER  XXXIII. 

LABOR  DIFFICULTIES. 

Corporations  necessary.  They  must  have  special  privileges.  The 
government  should  see  that  their  powers  are  properly  exer- 
cised. There  should  be  a  labor  commission.  Also  a  court  of 
arbitration,  with  final  jurisdiction 124-125 


INTRODUCTION. 


Definitions. 

Political  Economy  is  the  science  of  values. 
It  treats  of  the  production,  distributiotiy  exchange, 
and  consumption  of  wealth.  Political  Economy 
should  not  be  confounded  with  Politics.  The  two 
terms  have  essentially  different  meanings ;  and 
yet  the  distinction  between  them  is  seldom  clearly 
apprehended  by  the  popular  mind.  Politics  is  the 
science  of  government.  It  treats  of  the  relations 
and  duties  of  the  people  and  their  rulers ;  and 
teaches  how  the  privileges  and  rights  of  citizens 
may  be  protected  and  preserved. 

Political  Economy  has  no  reference  to  form  of 
government,  choice  of  rulers,  enactment  of  laws, 
administration  of  national  affairs,  liberties  of  the 
people,  or  character  of  rulers  ;  only  so  far  as  these 
things  have  an  influence  on  the  wealth  and  pros- 
perity of  citizens.  They  are  kindred  sciences, 
intimately  connected,  but  occupying  distinct  prov- 
inces. Political  Economy  has  reference  to  the 
wealth  and  prosperity  of  the  people.  Politics 
concerns  the  people  themselves. 


2  political  economy. 

Value. 
Value  is  of  two  kinds,  intrinsic  and  commer- 
cial.    Intrinsic  Value  is  the  worth  of  an  object  as 
indicated  by  its  utility. 

Commercial  Value  is  the  worth  of  an  object  as 
indicated  by  its  power  in  exchanges. 

Frequently  these  two  kinds  of  value  are  essen- 
tially different.  For  instance,  the  intrinsic  value 
of  air  is  inestimable,  while  its  commercial  value  is 
nothing.  Its  presence  is  universal,  hence  there 
can  be  no  motive  for  wishing  to  obtain  it  in 
exchange  for  any  other  commodity.  The  want  of 
it  alone  can  demonstrate  its  intrinsic  value. 

Water,  like  air,  is  absolutely  indispensable,  but 
it  can  have  no  commercial  value  unless  it  is  pro- 
'duced  by  some  local  scarcity.  Even  then  it 
becomes  valuable  commercially  simply  on  account 
of  the  labor  necessary  to  obtain  it  under  the 
peculiar  circumstances.  Thus,  we  perceive  that 
the  most  useful  things  are  not  always  the  most 
valuable  in  the  market.  The  term  intrinsic  value 
is  frequently  designated  utility  in  treatises  on 
Political  Economy.  The  term  value  is  then  re- 
stricted to  commercial  value.  It  will  be  so  under- 
stood in  this  treatise  when  not  otherwise  stated. 

Money  is  an  authoritative  standard  of  estimating 
value,  and  is  employed  as  a  medium  of  exchange. 

Worth  is  the  real  value  of  a  thing. 

Cost  is  the  value  as  indicated  by  the  amount  of 


INTRODUCTION.  3 

labor  necessary  to  produce  a  commodity,  or  the 
amount  of  money  required  to  purchase  it. 

Price  is  the  amount  of  money  at  which  an  article 
is  valued  by  the  seller. 

Wealth. 

Wealth  consists  of  all  exchangeable  commodities 
and  conveniences  designed  to  supply  human  needs, 
satisfy  human  wants,  or  gratify  human  desires. 

It  is  evident  that  an  object  must  possess  ex- 
changeable value  in  order  to  become  an  element 
of  wealth.  An  object  may  be  useful  in  the 
highest  degree,  and  still  not  constitute  wealth. 
Air  and  sunlight  are  absolutely  indispensable,  but 
they  are  not  elements  of  wealth,  because  they 
have  no  exchange  value.  No  one  wishes  to  pur- 
chase them,  for  a  sufficiency  may  be  obtained 
without  price.  A  man  may  possess  an  abundance 
of  these  things,  and  not  be  wealthy,  for  he  cannot 
exchange  them  for  any  other  commodity. 

It  is  also  evident  that  an  object  must  be  adapted 
to  meet  the  needs,  wants,  or  desires  of  mankind, 
or  it  will  not  be  considered  an  element  of  wealth  ; 
there  will  be  no  demand  for  it ;  men  will  not  laboi: 
to  obtain  it. 

Labor  is  the  voluntary  effort  of  a  human  being 
designed  to  accomplish  some  useful  purpose.  It 
is  the  prime  element  of  wealth.  Without  labor 
there  would  be  no  wealth  ;  without  the  desire  for 
wealth  there  would  be  no  labor.     Men  will  not 


4  POLITICAL  ECONOMY. 

labor  to  secure  what  they  do  not  want ;  they  do 
not  care  to  retain  what  they  do  not  desire. 

Capital  is  that  part  of  wealth  which  is  employed 
in  the  production  of  wealth. 

Capital  is  either  quick  or  permanent. 

Quick  capital  is  that  which  is  perishable  or 
rapidly  consumed  in  the  production  of  wealth. 

Permanent  capital  \^  that  which  is  comparatively 
permanent.  Thus  cotton,  wool,  lumber,  etc.,  to  be 
manufactured,  are  usually  called  quick  capital; 
buildings,  machinery,  etc.,  permanent  capital. 

Capital  may  also  be  classed  as  productive  and 
unproductive. 

Productive  capital  is  that  part  of  a  person's 
wealth  which  is  actually  producing  other  wealth. 

Unproductive  capital  is  that  which  for  the  time 
is  not  productive.  These  two  classes  frequently 
change  places, — productive  capital  every  day  be- 
comes unproductive,  and  vice  versa. 

A  capitalist  is  a  person  who  possesses  capital. 

It  will  be  readily  perceived  that  all  capital  is 
wealth,  but  all  wealth  is  not  capital. 


POLITICAL   ECONOMY. 


CHAPTER  I. 

WEALTH   OF   SAVAGES. 

The  spontaneous  products  of  Nature,  untouched 
by  human  hand,  are  not  wealth.  The  mine  must 
be  worked,  the  marble  must  be  quarried,  the  soil 
must  be  cultivated,  the  fruit  must  be  gathered, 
labor  must  be  applied,  in  order  that  wealth  may  be 
produced.  But  men  are  naturally  lazy ;  they  do 
not  love  work  for  the  sake  of  work  ;  they  love 
ease ;  they  are  indolent.  But  men  have  certain 
needs,  wants,  and  desires  which  are  usually 
stronger  motives  than  love  of  ease.  The  savage, 
influenced  by  the  necessity  for  food  to  satisfy  his 
hunger,  pursues  the  game ;  feeling  the  need  of 
shelter  from  the  storm,  he  constructs  his  rude 
wigwam ;  desirous  of  adornment,  he  endeavors  to 
obtain  ornaments  for  his  person.  But  his  appe- 
tite is  stronger  than  his  reason.  His  desire  for 
present  gratification  is  stronger  than  that  for  fu- 
ture happiness.  He  lives  for  the  present,  careless 
of  the  future.     Necessity  alone  can  overcome  his 

5 


6  POLITICAL  ECONOMY. 

love  of  ease.  The  result  is,  that  consumption 
rapidly  follows  production.  Consequently  there 
can  be  very  little  accumulation  of  wealth  among 
savage  tribes. 

What  they  possess  is  usually  obtained  by  ap- 
propriating the  spontaneous  products  of  nature. 
Their  food  is  generally  secured  by  fishing  and 
hunting ;  their  clothing  is  scarcely  sufficient  to 
protect  them  from  the  inclemency  of  the  weather ; 
their  huts  are  very  far  from  being  convenient  or 
comfortable ;  their  tools  and  implements  are  of 
the  rudest  kind.  Hence  the  wealth  of  the  savage 
scarcely  deserves  the  name.  They  exercise  very 
little  thought  in  regard  to  the  future  ;  they  are  not 
inclined  to  labor  more  than  is  absolutely  necessary, 
consequently  the  production  of  wealth  is  very 
meagre,  its  accumulation  still  less.  This  is  the 
teaching  of  Political  Economy  in  regard  to  the 
wealth  of  barbarous  tribes.  History  confirms  the 
truth  of  theory. 


CHAPTER  II. 

WEALTH   OF   SHEPHERD   TRIBES. 

As  savage  tribes  improve  intellectually  and  mor- 
ally, there  is  a  corresponding  increase  in  the  pro- 
duction of  wealth.  When  reason  and  conscience 
begin  to  restrain  appetite  and  passion,  self-love 
becomes  stronger  than   self-gratification :    future 


WEALTH    OF    SHEPHERD    TRIBES.  / 

comfort  becomes  an  element  of  calculation ;  the 
love  of  ease  yields  to  the  desire  for  accumulation. 
Hunger  teaches  men  that  it  is  not  wise  to  depend 
on  fish  and  game  for  the  support  of  their  daily- 
wants.  Famine  shows  them  the  need  of  providing 
food  for  the  time  of  scarcity.  Hence  they  gradually 
cease  to  depend  entirely  on  fishing  and  hunting  for 
their  support,  and  learn  to  subsist  largely  on  their 
flocks  and  herds.  Their  food,  for  the  most  part,  is 
flesh,  but  it  is  that  of  the  domestic  animal,  rather 
than  of  the  wild  animal.  The  rude  wigwam  of 
the  barbarian  gives  place  to  the  more  substantial 
hut.  The  dress  and  habits  of  the  savage  are  grad- 
ually laid  aside,  and  the  people  advance  one  stage 
in  civilization ;  they  cease  to  be  savages,  and  be- 
come shepherds. 

True,  the  shepherd's  life  is  kindred  to  that  of 
the  hunter,  but  it  requires  more  labor,  more  fore- 
thought, more  self-restraint,  more  care,  more  rea- 
son, more  judgment.  The  result,  as  might  be 
expected,  is  the  production  of  more  wealth.  As 
men  advance  from  a  state  of  barbarism  to  the  sec- 
ond stage  in  civilization,  they  cease  to  rely  exclu- 
sively on  the  spontaneous  products  of  the  land 
and  the  water  for  their  07vn  support ;  but  they 
still  depend  entirely  upon  the  uncultivated  soil 
for  the  sustenance  of  their  flocks  and  herds. 
Therefore  the  homes  of  shepherd  tribes  can  only 
be  temporary.  Hence  their  wealth  must  be  mova- 
ble.    Permanent  homes,  stable  possessions,  abun- 


8  POLITICAL  ECONOMY. 

dant  wealth,  advanced  civilization,  such  wandering 
tribes  of  shepherds  can  never  have.  It  is  only 
one  of  the  stages  of  transformation  in  the  progress 
of  a  nation  from  barbarism  to  a  high  state  of  civi- 
lization. It  is  the  second  stage  in  the  production 
of  wealth. 


CHAPTER  III. 

WEALTH   OF   AGRICULTURISTS. 

A  NOMADIC  life  does  not  always  satisfy.  Mov- 
ing from  place  to  place  is  tiresome  and  annoying. 
Men  become  attached  to  the  spot  where  they  play 
in  childhood.  But  when  food  and  water  fail  in  one 
locality,  the  shepherd  must  abandon  his  home,  and 
drive  his  flocks  and  herds  to  another.  When  a 
severe  winter  comes,  his  flocks  and  herds  die  for 
the  want  of  food  which  he  has  neglected  to  provide. 

Sooner  or  later,  men  become  tired  of  shepherd 
life,  and  begin  to  desire  permanent  homes,  fixed 
habitations,  stable  wealth.  They  crave  comforts 
as  well  as  necessaries.  But  these  cannot  be 
secured  while  moving  from  place  to  place.  Hence, 
gradually  they  abandon  their  nomadic  habits  and 
begin  to  cultivate  the  soil,  in  order  to  obtain  a  per- 
manent supply  of  food  for  themselves  and  their 
flocks.  They  build  houses  to  protect  their  wives 
and  children  from  the  inclemency  of  the  weather, 
they  construct  barns  to  shelter  their  horses  and 


WEALTH    OF   AGRICULTURISTS.  9 

cattle,  they  cultivate  and  dress  the  soil,  they  plant 
and  sow  the  seed,  they  weed  and  tend  the  crop, 
they  gather  the  ripened  harvest.  Thus  nomadic 
tribes  of  shepherds  gradually  abandon  their  former 
habits,  and  become  farmers,  agriculturists.  They 
learn  that  the  soil  is  a  slow,  but  sure  paymaster. 
They  perceive  that  the  greatest  reward  is  not  for 
spasmodic  efforts,  but  for  systematic,  intelligent, 
continuous  labor.  Experience  shows  them  the 
need  of  forethought ;  want  compels  them  to  practice 
economy ;  and  a  desire  for  the  comforts  and  conve- 
niences of  life  leads  them  to  toil  for  the  accumula- 
tion of  wealth.  Such  is  the  tendency  of  civilization. 
The  shepherd  becomes  a  farmer,  or  becomes  ex- 
tinct. He  learns  to  cultivate  the  ground,  or  is 
buried  in  it.  He  advances  to  the  third  stage  of 
civilization,  or  is  swept  into  oblivion. 

During  these  transition  periods  certain  changes 
take  place  which  have  a  powerful  influence  on  the 
production  of  wealth.  Some  of  these  will  now  be 
noticed. 


CHAPTER  IV. 

DIVISION    OF    LABOR. 

As  has  already  been  stated,  labor  is  the  prime 
element  in  the  production  of  wealth.  But  the 
productiveness  of  labor  depends  very  much  upon 
circumstances.     When  the  savage  wants  food,  he 


lO  POLITICAL  ECONOMY. 

catches  the  wild  animal,  kills  and  eats  it.  When 
he  needs  a  wigwam,  he  builds  it.  Each  one  sup- 
plies his  wants  by  his  own  efforts.  But  no  one  is 
equally  well  adapted  for  every  occupation.  Differ- 
ent individuals  have  certain  aptitudes  specially 
fitting  them  for  particular  occupations.  Thus  one 
person  may  have  a  peculiar  aptitude  for  tilling  the 
soil.  His  physical  and  mental  constitution  may 
exactly  fit  him  for  the  vocation.  Such  a  person 
will  do  more  and  better  work  as  a  farmer,  than  he 
would  if  he  possessed  no  love  for  his  calling.  But 
if  he  spends  all  his  time  and  energy  in  cultivating 
the  soil,  he  will  obtain  more  food  than  he  will  need 
for  himself  and  family,  though  he  will  be  destitute 
of  other  things  equally  necessary. 

Another  person  may  have  a  special  fitness  for 
cutting  and  making  garments.  Hence  he  will  do 
more  and  better  work  as  a  tailor  than  he  will  in 
any  other  occupation.  But  if  he  labors  exclusively 
in  his  own  favorite  vocation,  he  will  experience 
difficulties  similar  to  those  of  the  farmer.  He 
will  have  too  many  garments,  and  nothing  to  eat. 
So  it  is  with  every  individual  in  the  community. 
Each  has  special  tastes,  desires,  capabilities,  apti- 
tudes, which  fit  him  for  some  particular  occupation. 
Now  if  each  individual  attempts  to  supply  all  his 
wants  by  his  own  efforts,  he  will  work  at  a  great 
disadvantage.  By  doing  a  little  of  everything,  he 
will  be  good  at  nothing.  But  if,  on  the  other  hand, 
each  person  engages  in  that  kind  of  labor  for  which 


DIVISION    OF    LABOR.  II 

Nature  has  fitted  him,  he  will  soon  be  able  to  do 
more  and  better  work  than  if  he  should  attempt  to 
do  a  little  of  everything. 

This  fact  men  learn  as  soon  as  they  are  perma- 
nently located.  When  the  population  becomes  more 
numerous,  and  the  wants  of  men  are  greatly 
increased,  advancing  in  civilization,  they  begin  to 
crave  not  only  necessaries,  but  luxuries.  This 
produces  a  demand  for  more  rapid  production. 
Then  some  system  of  division  of  labor  is  devel- 
oped. Men  with  special  aptitudes  engage  in 
particular  callings,  and  then  exchange  the  super- 
fluous products  of  their  labor  for  other  commo- 
dities not  needed  by  their  neighbors.  At  first  this 
division  of  labor  is  limited  to  particular  trades  or 
occupations.  Thus  the  carpenter  builds  houses; 
the  shoemaker  manufactures  shoes ;  the  trader 
sells  goods.  But  as  the  population  becomes  more 
dense,  as  civilization  advances,  the  division  of  labor 
becomes  more  minute.  Thus,  in  the  shoe  business, 
one  man  cuts  the  uppers,  another  cuts  the  soles, 
another  cuts  the  heels,  another  makes  the  pegs,  an- 
other drives  them,  and  so  oii,  until  there  may  be  a 
hundred  men  engaged  in  making  one  single  shoe, 
before  it  is  completed  and  ready  to  be  worn.  So 
it  is  with  almost  every  branch  of  business,  in  an 
advanced  state  of  civilization.  The  benefits  of  such 
a  system  of  divided  labor  are  apparent.  Formerly, 
when  the  division  of  labor  was  more  closely  limited 
than  at  the  present  time,  there  was  a  narrower  range 


12  POLITICAL   ECONOMY. 

for  choice  of  occupation  ;  the  time  occupied  as  an 
apprentice  was  much  longer ;  the  work  performed 
was  not  so  good ;  the  production  of  wealth  was  not 
so  rapid.  Now,  a  young  man  may  choose  his  occu- 
pation from  ten  thousand  specialties ;  may  learn 
his  trade  in  a  few  weeks,  and  take  his  place  as  a 
journeyman,  doing  good  work  and  earning  good 
wages. 

It  has  been  a  disputed  question  whether  there 
is  any  limit  to  this  division  of  labor.  But  it  need 
not  be  discussed  here.  Circumstances  and  not 
theories  will  determine  the  amount  and  the  limit  of 
the  division  of  labor.  Other  things  being  equal, 
the  more  dense  the  population,  and  the  more  ad- 
vanced the  civilization,  the  greater  the  amount  of 
the  division  of  labor. 


CHAPTER   V. 

SUBSTITUTES   FOR   HUMAN   LABOR. 

The  wants  of  the  savage  are  few,  and  are  sup- 
plied by  a  small  amount  of  labor.  But  as  men  rise 
in  the  scale  of  being,  as  they  advance  in  civilization, 
their  real  and  fancied  wants  increase  more  rapidly 
than  their  ability  to  supply  them  by  their  own  per- 
sonal efforts.  Luxuries  of  one  age  become  neces- 
sities of  the  next.  Men  love  ease,  but  they  desire 
to  enjoy  the  products  of  labor.  Hence  they  soon 
cast  about  them  to  find  some  substitute  for  human 


SUBSTITUTES   FOR  HUMAN  LABOR.  1 3 

muscle.     The  one  which  is  first  and  most  naturally 
employed  is  that  of  — 

Domestic  Animals  as  a  Motive  Pozver. — Whether 
all  animals  were  once  in  a  wild  state,  or  whether 
the  Creator  intended  that  certain  beasts  should 
become  the  servants  of  men,  is  not  a  question  for 
discussion  here.  Certain  it  is  that,  at  a  very  early 
stage  of  civilization,  men  employed  domestic  ani- 
mals to  perform  work  for  them.  The  ox,  the  horse, 
the  mule,  the  camel,  the  elephant,  and  various 
other  animals,  have  been  compelled,  by  the  super- 
ior intelligence  of  man,  to  serve  him  under  different 
circumstances,  in  all  ages,  for  numerous  purposes. 
They  have  borne  burdens,  carried  messages,  hauled 
carriages,  fought  battles,  and  performed  countless 
other  valuable  services.  Thus  domestic  animals 
have  supplemented  the  manual  labor  of  their  own- 
ers, and  have  contributed  an  immense  amount  to' 
the  aggregate  of  work  performed.  They  have 
been,  and  still  are,  important  auxiliaries  in  the 
production  of  wealth. 

They  are  indispensable,  and  yet  they  do  not  fully 
supply  the  demand  for  motive  power  in  civilized 
life.  They  are  convenient,  profitable,  necessary; 
but  the  cost  of  obtaining,  the  expense  for  feeding, 
the  risk  of  keeping  them,  are  all  serious  objec- 
tions. Hence  the  tendency  to  substitute  some 
other  force,  which  will  accomplish  the  same 
purpose  with  less  trouble,  expense,  and  risk.  Nat- 
urally men  seek  some  method  of  substituting  in- 


14  POLITICAL  ECONOMY. 

organic  force  for  organic.  Generally  the  first 
advance  in  this  direction  is  the  employment  of — 

Wind  as  a  Motive  Power.  —  Early  in  the  world's 
history,  men  employed  wind  for  a  motive  power 
instead  of  muscle,  —  how  early  we  do  not  know. 
It  has  been  used  for  grinding  corn,  pumping 
water,  propelling  boats  and  ships,  and  numerous 
other  purposes.  It  is  still  employed  extensively 
in  many  localities.  Hence  it  has  been,  and  still 
is,  an  important  factor  in  the  production  of 
wealth. 

But  it  is  so  variable  and  uncertain  that  it  cannot 
be  relied  on  where  a  steady,  continuous  force  is 
needed.  The  objections  are  so  serious  that  man- 
kind soon  learned  to  employ — 

Water  as  a  Motive  Power.  —  Experience  soon 
teaches  men  that  dead  matter  is  a  much  more  re- 
liable force  than  living  muscle.  But  falling  water 
is  decidedly  preferable  to  moving  atmosphere.  The 
cost,  like  that  of  air,  is  nothing,  except  the  expense 
necessary  for  its  application.  Gravitation  furnishes 
power,  the  heat  of  the  sun  renews  it,  man  by  his 
ingenuity  applies  it.  Its  value  as  a  motive  power 
cannot  be  estimated.  It  has  contributed  greatly 
to  the  production  of  wealth.  It  has  been  an  im- 
portant factor  in  the  progress  of  civilization.  Man- 
kind have  obtained  many  necessaries,  secured 
many  conveniences,  and  enjoyed  many  luxuries, 
which  they  never  could  have  possessed,  had  it  not 
been  for  the  motive  power  of  falling  water. 


SUBSTITUTES   FOR  HUMAN   LABOR.  1 5 

For  gerterations  men  were  satisfied  with  water 
as  a  supplementary  power.  But  at  last  the  world 
began  to  desire  something  better.  It  was  not 
adequate  to  meet  the  wants  of  an  advanced  state 
of  society.  Then  scientific  men  directed  their 
attention  and  energies  to  the  discovery  of  an  agent 
which  should  meet  the  demands  of  the  age ;  which 
should  be  practically  unlimited  in  power ;  which 
would  not  be  destroyed  by  drought  or  flood ;  which 
could  be  safely,  easily,  uniformly  applied.  These 
experiments  led  to  the  adoption  of  — 

Steam  as  a  Motive  Power. —  By  observation  and 
experiment  it  was  ascertained  that  the  vapor  oi 
water  is  vastly  more  powerful  than  water  itself. 
It  then  only  remained  to  invent  some  simple 
machine  by  which  this  new  force  could  be  applied 
and  utilized.  "  But  the  hour  of  need  never  waits 
for  tHe  man  of  genius."  "  Nature  never  withholds 
her  secrets  from  him  who  persistently  searches  for 
them."  Watt,  Stephenson,  and  other  men  of  genius 
invented  an  engine  by  which  the  newly  discovered 
force  has  been  successfully  applied  ;  by  which  the 
wheel,  the  car,  the  loom,  may  be  moved  ;  by  which 
all  kinds  of  machinery  may  be  propelled  ;  by  which 
an  enormous  amount  of  manual  labor  may  be 
saved  ;  by  which  a  vast  amount  of  wealth  has  been 
and  will  be  produced. 

We  might  also  here  mention  — 

Electricity  as  a  Motive  Potuer. —  Electricity  has 
been  successfully  employed  for  conveying  mcssa- 


l6  POLITICAL   ECONOMY. 

ges  over  the  land  and  under  the  ocean  ;  for  light- 
ing our  streets,  our  homes,  and  public  buildings ; 
and  for  numerous  other  useful  purposes.  It  is  a 
powerful  agent,  practically  omnipresent,  and  almost 
omnipotent.  Already  wonderful  things  have  been 
accomplished  by  its  agency  ;  but  what  will  be  done 
by  it  as  a  motive  power  when  it  is  brought  under 
perfect  control,  no  man  can  safely  predict.  The 
application  of  steam  produced  a  revolution  in  the 
material  world;  the  perfection  of  machinery  by 
which  electricity  can  as  easily  and  safely  be  made 
to  obey  the  will  of  man  may  produce  a  greater 
revolution.  It  has  already  proved  to  be  an  impor- 
tant element  in  the  production  of  wealth,  an  essen- 
tial factor  in  the  progress  of  civilization. 


CHAPTER  VI. 

MACHINERY. 

It  has  been  argued  that  men  may  exist  in  a  state 
of  absolute  barbarism,  feeding  upon  the  sponta- 
neous products  of  a  tropical  climate,  as  do  brutes, 
without  tools  or  implements  except  what  Nature 
has  provided  for  them.  However  this  may  be  in 
theory,  practically  no  tribe  has  ever  been  found  so 
low  in  the  scale  of  being  as  to  be  entirely  desti- 
tute of  tools  and  implements.  In  the  earlier  stages 
of  society  these  were  extremely  rude.  They  are 
used  simply  to  enable  men  to  employ  their  own 


MACHINERY.  1/ 

muscular  powers  more  advantageously  in  produc- 
ing the  necessaries  of  life.  But  every  advance  in 
civilization  has  been  preceded,  accompanied,  or  fol- 
lowed by  a  corresponding  improvement  in  tools 
and  implements.  The  invention  and  manufacture 
of  tools  have  been  important  elements  in  the  pro- 
duction of  wealth. 

When  the  only  method  of  supplying  the  wants 
of  men  is  manual  labor,  the  means  and  methods  of 
applying  force  are  extremely  simple.  But  when 
other  powers  are  to  be  employed  to  supplement 
human  muscle,  there  is  need  of  more  elaborate 
contrivances  by  which  to  accomplish  the  purpose. 
This  leads  to  the  invention  and  manufacture  of 
more  elaborate  machinery.  Man  can  guide  his 
own  footsteps  by  the  exercise  of  his  will ;  but  when 
he  wishes  to  direct  those  of  a  horse,  he  needs  a 
bridle.  He  can  carry  a  bundle  on  his  shoulder ; 
but  if  the  horse  is  to  become  his  burden-bearer,  he 
must  have  a  saddle.  He  can  turn  the  green  turf 
with  a  spade  or  a  shovel ;  but  if  the  ox  is  to  per- 
form the  same  service,  he  must  have  a  yoke,  a 
chain,  and  a  plough.  He  can  pulverize  the  soil 
with  a  rake  or  a  hoe ;  but  if  the  horse  is  to  effect 
the  same  purpose,  he  must  have  a  harness  and  a 
harrow. 

Thus,  when  men  began  to  use  domestic  animals 
as  substitutes  for  manual  labor,  there  was  devel- 
oped an  absolute  necessity  for  proper  machinery. 
The  demand   produced  the  supply.     The  supply 


•l8  POLITICAL   ECONOMY. 

resulted  in  an  increased  production  of  wealth.  The 
savage  may  propel  his  canoe  across  the  river  with 
a  paddle  ;  but  when  the  wind  is  to  be  employed, 
instead  of  muscle,  to  waft  the  great  ship  across 
the  broad  ocean,  there  is  need  of  machinery.  He 
can  crush  his  corn  with  a  stone,  on  the  cliff ;  but 
when  falling  water  is  to  be  employed  to  perform 
the  same  service  a  thousand  times  more  rapidly, 
there  is  need  of  a  mill  with  modern  machinery. 

The  pioneer  may  travel  slowly  across  the  coun- 
try and  carry  a  bundle ;  but  when  an  army  with  its 
equipments,  its  baggage  and  supplies,  is  to  be 
carried  across  a  continent,  rapidly  and  safely,  by 
means  of  a  little  vapor  of  water,  an  engine  of 
peculiar  construction  is  necessary. 

A  man  may  express  his  thoughts  by  writing 
them  with  a  pen  on  paper ;  but  if  millions  of  vol- 
umes are  to  be  printed  yearly,  by  means  of  steam 
power,  only  the  genius  of  an  advanced  stage  of 
society  can  contrive  a  machine  which  will  accom- 
plish such  a  result. 

A  man  may  stand  in  his  own  doorway  and  talk 
with  his  neighbor  across  the  street ;  but  if  he  is 
to  sit  on  the  shore  of  the  Atlantic  and  talk  to 
another  on  the  coast  of  the  Pacific,  there  must  be 
some  kind  of  machinery  by  which  the  sound  may 
be  conveyed. 

Thus,  every  force  discovered  calls  for  new  ma- 
chinery by  which  it  may  be  applied.  The  intro- 
duction of  new  machinery  increases  the  production 


CAPITAL.  19 

of  wealth.  The  increase  of  wealth  gives  more 
leisure  for  study,  invention,  and  discovery.  These 
causes  and  effects  mutually  act  and  react  upon 
each  other. 


CHAPTER  VII. 

CAPITAL. 

Capital  is  that  part  of  wealth  which  is  employed 
in  the  production  of  other  wealth. 

Although  labor  is  the  prime  element  of  wealth, 
yet  labor  alone  can  produce  no  wealth.  At  first, 
the  spontaneous  products  of  nature  are  appropri- 
ated by  means  of  human  effort  to  supply  the  wants 
of  men.  But  the  amount  of  wealth  thus  produced 
is  very  small.  At  a  very  early  stage  in  the  pro- 
gress of  the  race,  a  part  of  the  wealth  already 
acquired  is  employed  in  the  production  of  other 
wealth. 

Thus  the  bow,  the  arrow,  the  tomahawk  of  the 
American  Indian  might  be  exchanged  for  other 
things  which  would  gratify  his  desires,  and  they 
may  properly  be  considered  wealth ;  but  as  they 
are  retained  in  his  possession  in  order  to  aid  him 
in  obtaining  food  for  the  future,  they  are  also  called 
capital.  The  hooks,  lines,  and  boats  of  the  fisher- 
man are  a  part  of  his  wealth  ;  but  they  are  also 
used  by  him  to  increase  his  wealth.  They  are  his 
capital. 


20  POLITICAL  ECONOMY. 

Seed  placed  in  the  ground  by  the  farmer  is  val- 
uable, but  it  is  sacrificed  in  order  that  a  harvest 
may  be  secured.  Seed  is  a  part  of  the  farmer's 
capital.  Payment  made  for  labor,  with  the  expec- 
tation that  the  return  will  be  greater  than  the 
outlay,  is  capital. 

It  will  be  readily  perceived  that  wealth  and  cap- 
ital are  not  synonymous  terms.  All  capital  is 
wealth,  but  not  all  wealth  is  capital.  The  feathers 
and  finery  of  the  American  Indian  will  gratify  his 
desire  for  ostentation,  but  his  bow  and  arrow  will 
assist  him  in  procuring  food  for  the  morrow.  The 
shrubs  and  flowers  on  the  lawn  of  the  farmer  may 
gratify  his  love  of  the  beautiful,  but  his  cornfield 
will  produce  food  for  the  support  of  his  family. 
Both  are  wealth,  but  only  the  latter  is  capital.  A 
man  may  have  any  amount  of  wealth,  but  it  is 
called  capital  only  when  employed  for  the  purpose 
of  producing  additional  wealth. 


CHAPTER  VIII. 

INCREASE   OF    CAPITAL. 

Capital  is  constantly  decreasing.  Machinery 
wears  out,  workshops  decay,  and  all  other  kinds  of 
capital  are  liable  to  diminish  in  value :  but  the 
natural  tendency  is  toward  an  increase  of  capital. 
Like  attracts  like,  wealth  attracts  wealth,  capital 
attracts  capital.     The  one  talent  hid  in  the  ground 


INCREASE   OF   CAPITAL.  21 

was  unproductive.  The  two,  the  five,  the  ten 
were  used,  and  returned  with  usury. 

There  are  numerous  circumstances  which  tend 
to  promote  the  increase  of  capital,  a  few  of  which 
will  now  be  noticed. 

Location.  —  A  territory  with  mountainous  re- 
gions so  situated  as  to  condense  the  moisture  of 
the  clouds  in  proper  quantities ;  with  fertile  val- 
leys broad  enough  to  sustain  a  numerous  popula- 
tion ;  with  navigable  lakes  and  rivers  sufficient  to 
furnish  abundant  means  for  internal  traffic ;  with 
safe,  convenient,  and  numerous  harbors  communi- 
cating with  the  ocean,  the  great  highway  of  for- 
eign commerce ;  such  a  territory  will  naturally 
attract  capital  from  without,  and  create  capital 
within  its  own  borders.  The  increase  of  capital 
in  such  a  nation  must  be  rapid,  provided  that  other 
circumstances  are  favorable.  The  United  States 
is  so  situated. 

Nature  of  the  Soil.  —  A  barren,  rock)^  moun- 
tainous region,  without  commercial  facilities,  with- 
out mineral  resources,  without  agricultural  ad- 
vantages, where  the  inhabitants  are  compelled  to 
obtain  their  support  from  the  products  of  the  soil, 
cannot  be  so  favorable  for  the  increase  of  capital 
as  a  fertile  valley  like  that  of  the  Mississippi. 
The  nature  of  the  soil  frequently  determines  the 
character  of  the  inhabitants.  Poor  soil  is  the 
native  home  of  poverty.  It  furnishes  stopping- 
places  for  those  who  can  obtain  no  better  loca- 


22  POLITICAL   ECONOMY. 

tions,  while  good  soil  attracts  men  of  talent  and 
energy  and  develops  capital. 

Climate.  —  Climate,  also,  has  an  important  in- 
fluence on  the  increase  of  capital.  A  rigorous 
climate  like  that  of  Greenland,  or  an  unhealthy 
one  like  that  of  Africa,  is  unfavorable  ior  the  in- 
crease of  capital,  since  it  is  difficult  to  procure 
the  labor  necessary  to  render  its  employment  pro- 
fitable. But  where  the  climate  is  agreeable  and 
healthful,  there  men  are  energetic  and  vigorous : 
there  people  love  to  dwell ;  there  wealth  concen- 
trates ;  there  capital  accumulates,  provided  that 
other  circumstances  are  favorable. 

Character  of  the  Inhabitants.  —  To  the  barbarian, 
present  ease  and  enjoyment  are  much  more  im- 
portant than  future  happmess  and  comfort.  Of 
the  exercise  of  forethought  he  knows  very  little. 
To  the  practice  of  economy  he  is  a  stranger. 
With  him  consumption  is  the  rule,  accumulation 
the  exception.  Theory  would  seem  to  indicate 
that  there  would  be  very  little  increase  of  capital 
among  savage  tribes.  The  history  of  the  world 
confirms  the  theory. 

But  when  men  begin  to  exercise  their  reasoning 
powers  they  soon  perceive  that  capital  is  an  almost 
indispensable  auxiliary  of  labor  in  the  production 
of  wealth.  They  see  that  labor  is  powerless 
without  capital,  and  at  a  very  early  stage  in  the 
progress  of  a  people  they  set  apart  a  portion  of 
their  earnings  for  capital.      Other  things   being 


INCREASE   OF   CAPITAL,  2$ 

equal,  every  advance  in  the  ability,  the  intelli- 
gence, the  morality  of  a  people,  is  accompanied  by 
a  similar  increase  in  the  amount  of  productive 
capital.  And  this  increase  is  rapid,  because  the 
surplus  wealth  accumulated  to-day  is  added  to  the 
working  capital  of  to-morrow.  Thus  the  capital 
of  a  nation,  compounding  continually,  increases  in 
a  geometrical  ratio.  Whether  there  is  a  natural 
limit  to  this  increase  will  not  be  discussed  here. 
Certain  it  is,  that  if  a  people  labor  intelligently, 
reason  correctly,  live  economically,  and  all  other 
circumstances  are  favorable,  they  may  confidently 
expect  to  accumulate  property  rapidly  and  per- 
manently. But  when  the  heart  of  a  people  be- 
comes rotten,  when  the  civilization  of  a  nation 
begins  to  decay,  it  is  certain  that  the  height  of 
prosperity  has  been  reached ;  that  the  increase 
of  capital  will  cease ;  that  the  diminution  of  prop- 
erty will  commence. 

Nature  of  the  Government.  —  In  the  savage  state 
might  makes  right ;  the  stronger  party  appro- 
priates the  property  of  the  weaker ;  there  is  no 
security  for  the  products  of  labor;  and  conse- 
quently little  incentive  to  accumulate  capital.  In 
a  nation  where  the  government  is  unstable,  rapa- 
cious, tyrannical,  revolutionary,  capital  increases 
slowly.  It  has  a  cowardly  nature,  and  demands 
security. 

The  man  wha  sows  the  seed  wishes  to  be  sure 
that   he   can  have    the   privilege   of  reaping  the 


24  POLITICAL  ECONOMY. 

harvest.  Government  must  guarantee  that  con- 
tracts shall  be  considered  valid ;  that  ownership 
shall  be  regarded  as  sacred ;  that  wealth  shall  not 
be  confiscated ;  that  life  and  property  shall  be 
protected.  Otherwise  there  can  be  no  permanent 
increase  of  capital. 

Capital  is  quick  to  perceive  danger.  It  discov- 
ers the  approach  of  riot,  revolution,  anarchy,  with 
almost  absolute  certainty.  It  is  an  excellent  polit- 
ical barometer.  It  is  always  in  favor  of  peace, 
quiet,  harmony,  good  order.  Poverty  can  afford 
to  be  rash  and  radical,  but  capital  is  always  a  con- 
servative element  in  society. 


CHAPTER   IX. 

TRADE. 

Trade  is  the  exchange  of  values,  or  the  titles 
to  values. 

Trade  is  of  two  kinds,  direct  and  indirect. 

Direct  trade  is  the  giving  of  one  commodity  for 
another.     This  is  frequently  called  barter. 

Thus,  one  person  has  wheat,  another  corn ;  one 
gives  the  other  a  bushel  of  wheat  and  receives  a 
certain  quantity  of  corn.  This  is  the  simplest 
form  of  trade  ;  in  the  early  stages  of  society  it  is 
the  only  form. 

The  two  parties  meet,  examine  the  articles, 
agree  upon  terms,  and  make  transfers.     There  is 


TRADE.  25 

no  third  party,  no  money,  no  medium  of  exchange. 
Trade  of  this  kind  must  necessarily  be  limited  to 
those  who  live  near  each  other. 

But  as  people  learn  to  appreciate  the  value  of 
articles  outside  of  their  immediate  vicinity ;  as 
they  perceive  the  advantage  of  exchanging  com- 
modities with  those  who  are  not  their  near  neigh- 
bors, market  places  are  frequently  established 
where  people  from  the  whole  circle  around  may 
congregate  at  certain  stated  times  and  make  ex- 
changes. In  this  way  the  parties  meet  as  before, 
and  the  trade  is  direct ;  but  the  conveniences  for 
traffic  are  superior.  This  is  usually  the  second 
stage  of  progress  in  trade. 

But  such  a  system  of  markets  cannot  long  en- 
dure, for  there  is  too  much  expense,  too  much 
travel,  too  much  loss  of  time.  Men  cannot  always 
meet  each  other  face  to  face  when  exchanges  are 
to  be  made. 

A  man  wants  tea  from  China,  coffee  from  Java, 
sugar  from  Cuba,  rice  from  India,  and  numerous 
other  articles  which  he  cannot  procure  of  his 
neighbors  or  at  local  markets.  But  he  does  not 
care  to  take  the  time  or  incur  the  expense  of 
visiting  those  distant  lands  where  such  commodities 
can  be  obtained  by  direct  exchange.  Hence  arises 
a  demand  for  middlemen,  traders,  or  dealers,  as 
they  are  sometimes  called,  to  stand  between  the 
producer  and  the  consumer.  Goods  pass  from  the 
producer  to  the  wholesaler  or  merchant,  thence  to 


26  POLITICAL   ECONOMY. 

the  retailer  or  dealer,  thence  to  the  consumer. 
They  may  pass  half  around  the  earth  before  they 
reach  their  final  destination.  They  may  go  through 
a  hundred  hands  before  they  reach  the  consumer. 
The  producer  may  live  in  China,  and  the  consumer 
in  the  United  States. 

Exports  are  goods  carried  from  one  country  into 
another. 

Imports  are  goods  brought  into  one  country /ww 
another. 

Exporters  are  merchants  who  convey  goods  out 
of  a  country. 

Importers  are  merchants  who  receive  goods  from 
foreign  lands. 

Duties,  customs,  imposts,  are  taxes  paid  to  the 
government  for  the  privilege  of  importing  or  ex- 
porting merchandise. 

Tariff  is  a  schedule  of  duties  payable  to  the 
government  for  the  privilege  of  importing  or  ex- 
porting merchandise. 

Duties  may  be  specific  or  ad  valorem. 

Specific  duty  is  a  specified  amount  per  yard,  per 
gallon,  per  bushel,  etc. 

Ad  valorem  duty  is  a  certain  percentage  on  the 
cost  of  the  merchandise. 

As  a  people  advance  in  civilization,  their  wants 
increase.  As  they  become  accustomed  to  the  pro- 
ducts of  other  lands,  things  at  first  considered 
luxuries  become  necessaries,  and  there  is  a  cor- 
responding increase  in  imports.    But  imports  must 


TRADE.  27 

be  obtained  in  exchange  for  exports.  Something 
cannot  be  secured  for  nothing. 

Now  it  has  long  been  a  disputed  question 
whether  there  should  be  any  restriction  upon  the 
importation  and  exportation  of  merchandise. 

In  regard  to  this  question,  probably  there  has 
been  more  difference  of  opinion  than  in  respect  to 
any  other  in  the  whole  range  of  political  economy. 

The  shrewdest  politicians,  the  wisest  statesmen, 
the  most  learned  scholars,  the  deepest  thinkers, 
are  by  no  means  agreed  in  respect  to  this  subject. 
Various  theories  have  been  advanced,  numerous 
experiments  have  been  tried,  and  still  public  sen- 
timent remains  divided.  It  should  be  remem- 
bered that  this  subject  involves  some  of  the  most 
important  questions  in  social  science.  Theories 
should  not  be  adopted  hastily  in  regard  to  restric- 
tions in  trade  ;  but  they  should  be  carefully  tested 
in  the  light  of  history  with  reference  to  the  pres- 
ent circumstances.  Angry  debate  and  party  ani- 
mosity are  out  of  place  in  discussing  such  a  sub- 
ject. The  laws  of  nations  have  differed  as  radi- 
cally as  have  the  theories  of  political  economists, 
from  absolute  free  trade,  through  all  grades  of  re- 
striction, to  perfect  non-intercourse  with  other 
nations. 

The  most  important  of  these  theories  will  now 
be  presented,  together  with  the  arguments  usually 
advanced  for  and  against  each. 


28  POLITICAL  ECONOMY. 

CHAPTER   X. 

FREE    TRADE. 

The  theory  of  free  trade  is  perfectly  simple, 
namely,  that  there  should  be  no  restriction  what- 
ever upon  the  freedom  of  trade  ;  that  the  markets 
of  the  world  should  be  thrown  open  to  every  man, 
without  regard  to  national  boundaries ;  that  there 
should  be  no  charge  for  the  privilege  of  importing 
and  exporting  merchandise ;  that  money  to  pay 
the  expenses  of  the  government  should  be  ob- 
tained by  taxing  the  persons  and  property  pro- 
tected :  that  every  restriction  upon  the  free 
exchange  of  commodities  is  unnatural,  and  will, 
consequently,  be  an  injury  to  the  producer  or 
consumer,  or  to  both. 

The  friends  of  this  theory  argue  that,  as  the  men 
of  all  nations  belong  to  the  same  common  family, 
therefore  all  should  have  the  privilege  of  buying  and 
selling  wherever  prices  are  the  most  favorable. 
They  say  that  a  man  should  have  the  privilege  of 
exchanging  commodities  with  his  neighbor  without 
being  compelled  to  pay  a  tax  on  every  article  ex- 
changed ;  but  according  to  the  teaching  of  the  Bible 
every  man  is  his  neighbor,  therefore  he  should  have 
perfect  freedom  to  trade  with  any  man  on  earth  with- 
out the  payment  of  duties.  The  answer  is  made 
that  the  cases  are  not  alike.  A  man  ought  to  have 
a  right  to  exchange  the  products  of  his  labor  with 


FREE   TRADE.  29 

his  neighbor  freely,  provided  that  there  is  no  reason 
to  the  contrary.  But  if  a  man  has  bought  land, 
and  on  it  built  a  market-place  for  the  purpose  of 
exchanging  merchandise  with  his  neighbors  con- 
veniently and  economically,  then  another  man  has 
not  the  same  right  to  occupy  that  market-place  as 
has  the  owner.  Others  have  not  the  right  to 
occupy  stalls  in  that  building  without  paying  for 
the  privilege. 

Let  us  apply  this  same  principle  to  nations.  A 
nation  spends  millions  of  dollars  improving  its 
rivers  and  harbors,  encouraging  manufactories, 
providing  commercial  facilities,  building  railroads, 
and  developing  markets  for  merchandise :  then  that 
nation  has  a  superior  claim  to  the  markets  of  that 
territory.  It  has  a  right  to  charge  a  man  who  has 
contributed  nothing  for  all  these  improvements  for 
the  privilege  of  occupying  such  markets. 

The  man  who  has  a  farm  better  situated  than 
that  of  his  neighbor  charges  more  for  rent  than 
the  other.  This  is  considered  perfectly  just.  In 
like  manner,  a  nation  so  situated  that  it  has  a 
better  market  than  others  has  a  perfect  right  to 
charge  foreigners  a  reasonable  amount  for  the  priv- 
ilege of  buying  or  selling  in  that  market.  There 
can  therefore  be  no  doubt  in  regard  to  the  moral 
right  which  a  nation  has  to  levy  a  duty  on  imports. 

Then  the  question  whether  trade  should  be  free 
or  restricted  becomes  simply  one  of  policy. 

But  the  free  trader  asserts  that  every  barrier 


30  POLITICAL   ECONOMY. 

placed  on  a  nation's  boundary  prevents  the  free 
exchange  of  commodities,  and  consequently  in- 
creases the  price  which  must  ultimately  be  paid  by 
the  consumer. 

The  answer  usually  given  to  this  assertion  is, 
that  the  duties  collected  are  paid  into  the  public 
treasury,  and  the  reduction  of  direct  taxes  will 
more  than  compensate  for  the  increase  in  prices. 

Again,  it  is  asserted  that  a  revenue  should  be 
collected  by  direct  taxation,  not  by  indirect  meth- 
ods: then  every  man  will  pay  his  just  proportion 
of  the  public  expenses.  The  reply  generally  made 
to  this  statement  is,  that  no  other  method  has  ever 
been  devised  by  which  taxes  can  be  collected  so 
easily,  so  cheaply,  and  with  so  little  complaint  and 
opposition,  as  by  levying  a  duty  upon  imported  mer- 
chandise. It  is  confidently  asserted  by  the  oppo- 
nents of  free  trade  that  the  enormous  amount  of 
money  which  has  been  collected  by  indirect  meth- 
ods in  the  United  States  since  i860  could  not  have 
been  obtained  by  direct  taxation ;  the  people  would 
have  rebelled. 

It  is  also  objected  by  the  free  trader  that,  when 
duties  are  levied  on  imports,  the  poor  man  must  pay 
as  much  tax  as  the  nch  man.  This  is  true  if  he 
purchases  the  same  kind  and  an  equal  amount  of 
imported  merchandise,  for  the  consumer  must 
eventually  pay  the  duty ;  but  the  usual  method  is 
to  place  a  high  tariff  on  luxuries,  and  none  on 
necessaries,  so  that  the  poor  man  need  not  pur- 


FREE   TRADE.  3 1 

chase  a  single  dollar's  worth  of  imported  goods 
unless  he  chooses  to  do  so.  Then  he  will  pay- 
no  tax. 

But  it  is  said  that  the  system  of  free  trade  is  the 
only  one  consistent  with  true  benevolence ;  that  a 
nation  should  open  its  doors  and  let  foreigners 
have  the  same  privileges  as  citizens.  This  is  a 
very  pleasing  theory,  but  it  fails  when  applied  to 
the  common  affairs  of  life.  A  man  does  not  throw 
open  the  doors  of  his  house,  his  barn,  his  granary, 
his  store,  his  safe,  and  invite  every  one  to  come 
and  take  what  he  desires.  The  man  would  soon 
have  nothing  left,  and  the  partakers  of  his  wealth 
would  probably  be  injured  by  the  possession  of 
property  which  they  did  not  earn.  Such  a  man 
would  be  considered  a  fit  subject  for  an  insane  asy- 
lum. Apply  the  same  principle  to  a  nation,  and 
the  absurdity  will  be  apparent.  If  a  nation  has  a 
good  market  it  may  be  completely  ruined  by  mak- 
ing it  free  for  the  importation  of  merchandise  from 
all  parts  of  the  world. 

Such  a  principle  universally  applied  would  make 
everything  common,  would  abolish  personal  rights, 
would  annihilate  corporate  privileges.  But  it  is 
conceded  that  an  individual  may  hold  property, 
may  enjoy  certain  privileges  exclusively  without 
injustice  to  his  neighbor,  and  with  benefit  to  soci- 
ety. So  it  is  claimed  that  a  town,  a  county,  a 
state,  a  nation  may  possess  certain  natural  advan- 
tanges  or  acquired  privileges,  and  charge  others 


32  POLITICAL   ECONOMY. 

for  the  use  of  them,  and  all  parties  be  thus  bene- 
fited. Charity  begins  at  home.  Benevolence  has 
its  limits. 


CHAPTER  XI. 

TARIFF    FOR   REVENUE. 

Governments  are  necessary  in  order  to  prevent 
anarchy.  But  governments  cannot  exist  without 
money.  Hence  there  must  be  some  permanent 
system  of  replenishing  the  public  treasury.  There 
must  be  some  way  of  collecting  funds  to  pay  the 
expense  incurred  in  protecting  life  and  property. 
Taxation  of  some  kind  is  an  absolute  necessity. 
Now,  certain  classes  of  men  advocate  the  theory 
that  funds  for  the  support  of  the  government  can 
be  more  easily  and  more  economically  collected  by 
levying  a  tariff  on  imports  than  in  any  other  way. 

But  when  theory  is  put  in  practice,  difficulties 
are  always  encountered.  Hence  various  methods 
have  been  advocated. 

Some  have  asserted  that  a  certain  percentage 
sufficient  to  pay  the  expenses  of  the  government 
should  be  collected  on  all  goods  imported.  But 
the  opponents  of  this  theory  claim  that  such  a 
system  is  unjust ;  that  necessary  articles  should 
not  be  taxed  as  heavily  as  luxuries  ;  that  the  poor 
man  should  not  be  compelled  to  bear  as  much  of 
the  public  burden  as  the  rich  man ;   that  home 


TARIFF   FOR   REVENUE.  33 

industry  should  not  be  discouraged  by  a  uniform 
tariff ;  that  the  theory  has  always  failed  when  sub- 
mitted to  the  test  of  actual  trial. 

Others  have  argued  that  all  the  revenue  should 
be  collected  from  articles  which  are  injurious,  like 
alcohol  and  tobacco.  The  advocates  of  this  theory 
say,  "Tax  evil  habits  and  vices,  tax  injurious 
articles." 

But  the  question  arises,  When  was  an  evil  ever 
taxed  out  of  existence  ?  Men  will  have  alcohol 
and  tobacco  as  long  as  it  is  for  sale,  no  matter 
what  may  be  the  price.  By  taxing  these  articles 
so  heavily  the  poor  man  is  compelled  by  the 
strength  of  his  appetite  to  pay  a  large  proportion 
of  the  public  expense.  Such  evils  must  be  pre- 
vented by  legislation,  prohibition,  penalties,  —  not 
by  taxation. 

The  protectionist  objects  to  this  theory  because 
it  does  not  protect  home  industry,  except  the 
making  of  whiskey  and  the  cultivation  of  tobacco. 
By  placing  a  heavy  duty  on  these  articles,  the 
price  will  be  raised,  the  production  will  be  in- 
creased, and  the  evils  which  the  tariff  was  designed 
to  prevent  will  be  promoted.  This  effect  can  be 
averted  only  by  imposing  a  tax  on  production 
equal  to  that  on  importation. 

Others,  who  advocate  the  theory  of  tariff  for 
revenue  only,  say  that  luxuries  alone  should  be 
taxed,  so  that  the  poor  man  should  be  exempt  from 
taxation.     The  answer  is  that  this  practice  stimu- 


34  POLITICAL   ECONOMY. 

lates  the  home  production  of  luxuries ;  that  it 
encourages  the  importation  of  staple  articles ;  that 
it  drains  the  specie  from  the  country ;  that  it  ruins 
the  home  market ;  that  it  reduces  the  price  of 
labor ;  that  it  injures  the  poor  man  ;  and  that  it 
defeats  the  very  purpose  for  which  the  system  is 
advocated. 

Hence  in  the  application  of  this  theory,  which 
at  first  seems  perfectly  simple,  numerous  difficul- 
ties are  encountered. 


CHAPTER  XII. 

PROTECTION. 

The  theory  of  the  protectionists  is  this  :  That 
there  should  be  a  tariff  on  imported  articles  high 
enough  to  secure  sufficient  revenue  for  the  support 
of  the  government ;  that  the  taxes  should  be  so 
adjusted  as  to  protect  home  industry  ;  that  there 
should  be  free  importation  of  all  raw  material  not 
producible  in  the  country ;  that  native  products 
and  home  manufactures  should  be  protected  by 
properly  regulated  schedules  of  duties  ;  that  the 
tax  should  be  so  adjusted  that  the  agriculturist, 
the  mechanic,  and  the  manufacturer  may  each  be 
equally  benefited. 

But,  it  may  be  asked,  how  does  duty  on  imports 
protect  home  industry  ? 

In  the  old  world  capital  is  plenty,  interest  is  low, 


PROTECTION.  35 

labor  is  cheap,  and  men  are  satisfied  with  small 
profits.  In  the  United  States  all  these  circum- 
stances are  reversed.  Hence  capital  can  be  loaned, 
buildings  can  be  erected,  machinery  can  be  pur- 
chased, laborers  can  be  hired,  merchandise  can 
be  manufactured,  very  much  cheaper  in  the  old 
world  than  in  the  new. 

Now,  it  is  asserted  by  the  protectionist  that  if 
articles  manufactured  in  Europe  are  permitted  to 
come  into  free  competition  with  those  made  in 
this  country,  one  of  two  results  will  inevitably 
follow  —  either  the  price  of  interest,  rent,  and 
labor  must  be  scaled  down  to  the  European  stan- 
dard, or  our  manufactories  must  be  closed. 

For  example,  suppose  that  cotton  cloth  can  be 
made  in  England  and  brought  to  Lowell  for  five 
cents  per  yard,  and  suppose  that  it  costs  six  cents 
per  yard  to  manufacture  the  same  kind  of  cloth  in 
Lowell,  if  there  is  no  duty  on  the  cloth  brought 
from  England  it  can  be  sold  under  the  very  shadow 
of  the  mills  in  this  country  for  less  than  the  cost 
here,  and  still  the  foreign  manufacturer  will  make 
a  good  profit.  The  result  in  such  a  case  must  be 
the  closing  of  our  mills,  or  the  cutting  down  of 
prices  to  correspond  with  the  pauper  wages  of 
Europe. 

Hence,  our  laborers  must  become  producers  of 
raw  material,  and  work  at  starvation  prices,  while 
the  manufactories  and  the  profits  will  be  on  the 
other  side  of  the  ocean. 


36  POLITICAL  ECONOMY. 

The  protectionist  confidently  asserts  that  such 
must  be  the  result  of  free  trade  theoretically.  And 
he  as  confidently  points  to  the  pages  of  history  to 
prove  that  ruinous  results  have  followed  the  prac- 
tical application  of  the  theory.  He  points  to  the 
poverty,  the  suffering,  the  misery,  the  degradation 
of  the  laboring  men  and  women  of  Ireland  as  a 
practical  example  of  the  effects  of  free  trade  legis- 
lation. 

On  the  other  hand,  it  is  asserted  by  the  protec- 
tionist that  opposite  effects  will  always  follow  a 
high  tariff  judiciously  adjusted. 

Take,  for  instance,  the  same  example  as  before. 
If  cloth  can  be  brought  from  England  for  five 
cents  a  yard,  and  manufactured  here  for  six  cents, 
then  a  tax  of  one  cent  would  place  both  parties  on 
equal  terms  in  our  market ;  but  if  a  duty  of  two 
cents  a  yard  should  be  levied,  then  there  would  be 
a  margin  of  one  cent  a  yard  for  profit.  Cloth 
brought  from  England  would  cost  seven  cents, 
cloth  made  here  could  be  produced  for  six.  This 
would  give  our  manufacturers  practical  control  of 
the  markets,  and  consequently  increase  the  profits. 
But  profits  are  always  divided  between  labor,  cap- 
ital, and  the  manufacturer.  And  it  is  a  well-known 
fact  that  the  largest  share  of  the  returns  is  paid 
for  labor.  Hence  the  immediate  result  of  high 
duty  is  an  increase  of  the  wages  of  the  laborer,  and 
the  employment  of  home  capital.  But  if  the  profits 
are  greater,  more  manufactories  will  be  built,  more 


PROTECTION.  37 

laborers  will  be  employed,  and  there  will  be  a 
greater  demand  for  the  products  of  the  soil. 
Thus  the  farmer  will  receive  more  for  his  crops, 
and  be  benefited  by  a  high  tariff  upon  imports. 
But  laborers  in  manufactories  will  need  houses  and 
all  other  kinds  of  necessaries  ;  hence  mechanics, 
merchants,  traders,  and,  in  short,  all  classes  will  be 
benefited. 

This  is  the  condensed  theory  of  the  protec- 
tionist. 

To  many  persons  the  theory  seems  easy  and 
plausible ;  but  there  are  difficulties  in  regard  to 
its  practical  application  in  a  territory  as  exten- 
sive and  varied  as  that  of  the  United  States. 
Some  of  these  will  now  be  noticed. 

Pennsylvania,  for  instance,  is  largely  interested 
in  iron,  and  demands  a  high  rate  of  duty  on  it  in 
order  to  prevent  its  importation  from  other  coun- 
tries. But  as  "  everything  is  made  of  iron  or  with 
iron,"  a  large  part  of  the  fifty  millions  of  American 
people  prefer  that  iron  should  be  placed  on  the 
free  list.  But  if  the  duty  on  iron  should  be  en- 
tirely removed,  every  iron  mine  in  the  United 
States  would  be  closed,  or  the  prices  of  labor 
would  be  greatly  reduced.  Hence  the  producer 
clamors  for  protection,  but  the  consumer  com- 
plains that  he  is  oppressed  for  the  benefit  of  the 
few. 

The  lumbermen  of  the  North  call  for  a  high  duty 
on  lumber  in  order  to  prevent  competition  from 


38  POLITICAL   ECONOMY. 

British  America.  But  the  great  majority  of  the 
American  people  demand  cheap  lumber  for  fence- 
less farms  and  houseless  families.  Hence,  here  is 
a  clashing  of  interests  not  easy  to  be  reconciled. 
Protection  for  one  class  is  sometimes  called  op- 
pression by  another. 

A  few  planters  on  the  shores  of  the  Gulf  of 
Mexico  clamor  for  a  high  duty  on  sugar,  but  the 
great  majority  of  the  people  of  the  United  States 
complain  of  being  taxed  too  heavily  for  the  benefit 
of  so  small  a  number.  Some  men  contend  that  it 
would  be  more  economical  to  pay  the  planters  a 
liberal  bounty  from  the  national  treasury  on  every 
pound  of  sugar  produced,  and  then  let  sugar  be 
imported  free  of  duty. 

Thus  it  is  with  every  separate  branch  of  indus- 
try. Each  clamors  for  protection  even  at  the  ex- 
pense of  more  important  interests.  Hence  it  is 
frequently  contended  that  "protection  of  one  class 
is  oppression  for  another  ; "  that  "  protection  does 
not  protect." 

It  is  admitted  that  a  high  tariff  raises  prices  of 
protected  articles  for  the  time  being,  and  conse- 
quently increases  production.  But  the  opponents 
of  the  system  contend  that  the  result  always  is , 
overproduction,  and  consequent  stagnation.  The 
cost  being  more  than  in  coufitries  where  trade  is 
free,  there  can  be  no  foreign  market.  But  the 
large  profits  stimulate  production,  and  soon  the 
home   markets  are  overstocked ;  there  is  stagna- 


MODIFIED    PROTECTION.  39 

tion,  depression  of  prices,  cutting  down  of  wages, 
dissatisfaction  of  laborers,  strikes  of  workmen, 
suspension  of  manufacturing,  bankruptcy  of  em- 
ployers, panic,  distress,  suffering  of  the  masses. 

It  is  argued  that  a  high  tariff  is  like  any  other 
stimulant.  It  produces  a  feverish,  fancied,  ficti- 
tious success  which  is  sometimes  mistaken  for 
permanent  prosperity ;  but  which,  in  the  end,  wi]l 
prove  injurious  to  the  great  body  of  the  people ; 
that  it  inflates  prices,  encourages  speculation,  and 
leads  to  reckless  commercial  gambling ;  that  it 
produces  the  very  evil  which  it  is  designed  to 
prevent,  —  the  reduction  of  prices  and  the  ruin 
of  a  market. 


CHAPTER   XIII. 

MODIFIED    PROTECTION. 

During  past  ages  various  kinds  of  theories  have 
been  advocated  in  regard  to  restrictions  upon  trade, 
but  all  of  them  have  been  modifications  of  one  or 
more  of  the  three  which  have  been  explained. 
Some  say,  "Tariff  for  revenue,  and  protection 
incidental ; "  others,  "  Tariff  for  protection,  and 
revenue  incidental ; "  others.  "  Tariff  for  protec- 
tion ; "  and  still  others,  "  Tariff  to  prevent  impor- 
tation." None  of  these  theories  need  any  further 
explanation. 

There  is,  however,  a  kind  of  modified  protection 


40  POLITICAL   ECONOMY. 

theory  advocated  by  some  modern  political  econo- 
mists which  may  need  a  passing  notice. 

It  is  a  well-known  fact,  that  in  a  new  territory 
money  is  scarce,  interest  high,  laborers  few,  and 
manufacturers  need  to  be  protected  by  a  high 
rate  of  duty,  in  order  that  they  may  compete 
with  those  of  older  commuiyties,  where  capital  and 
labor  are  plenty.  But  as  the  people  become  more 
wealthy,  as  the  amount  of  production  increases, 
as  labor  becomes  more  abundant,  as  manufactories 
become  more  numerous,  as  competition  becomes 
sharper,  as  the  home  market  becomes  better  sup- 
plied, the  duty  on  imported  articles  should  be 
gradually  reduced.  As  a  people  advance  ift  civili- 
zation the  artificial  barriers  should  be  removed, 
and  all  kinds  of  commodities  should  be  freely 
admitted  to  the  markets  of  the  world. 

The  advocates  of  this  theory  contend  that  a 
high  duty  produces  an  artificial,  local  value,  and 
hence  there  can  be  no  permanent  market  for  pro- 
tected products  with  free-trade  nations  ;  that  when 
the  home  markets  are  glutted,  there  must  be  an 
outlet  for  production,  or  there  will  be  stagnation. 

To  compete  with  others  in  the  markets  of  the 
world,  therefore,  there  must  be  a  reduction  of  cost, 
but  to  effect  this  there  must  be  a  lower  rate  of 
duty.  Hence,  it  is  contended  by  those  who  advo- 
cate this  theory,  that  there  should  be  a  high  duty 
for  the  protection  and  encouragement  of  home 
production  during  the  infancy  and  childhood  of  a 


MODIFIED   PROTECTION.  4I 

nation ;  that  there  should  be  gradual  reduction  as 
manufactories  become  more  firmly  established, 
and  that  the  time  may  come  in  the  progress  of  a 
race  when  absolute  free  trade  will  be  a  nation's 
true  policy. 

These  men  contend  that  the  whole  subject,  like 
almost  every  other  in  political  economy,  is  a  prac- 
tical one ;  that  no  theory  can  be  adopted  which  can 
be  successfully  applied  under  all  circumstances ; 
that  a  thorough  knowledge  of  economical  history, 
and  a  perfect  understanding  of  the  present  state 
and  wants  of  the  people,  are  necessary  in  order  to 
decide  what  amount  of  duty  should  be  levied. 
When  a  nation  is  involved  in  war,  and  needs  every 
dollar  which  it  is  possible  to  collect,  then  the  duty 
must  be  adjusted  so  as  to  produce  the  greatest 
amount  of  revenue.  Protection  must  then  be 
incidental. 

Public  policy  and  not  party  prejudice  should 
control  the  question  of  revenue.  Wise  statesmen 
should  carefully  consider  the  situation  and  circum' 
stances  of  a  nation,  and  adjust  the  tariff  to  meet 
the  demands  of  the  times.  Changes  should  be 
made  to  meet  the  changing  condition  of  the  peo- 
ple. What  may  protect  at  one  time  may  oppress  at 
another.  What  may  benefit  one  people  may  in- 
jure another. 


42  POLITICAL  ECONOMY. 


CHAPTER  XIV. 

MONEY. 

As  long  as  barter  is  the  only  kind  of  trade, 
there  is  no  need  of  money.  But  as  soon  as  there 
is  an  indirect  interchange  of  commodities,  there 
is  a  demand  for  some  measure  of  value,  some 
medium  of  exchange,  some  substance  which  shall 
be  generally  desirable,  something  which  will  have 
universal  value. 

Moucy  is  an  authoritative  measure  of  value,  and 
is  used  as  a  medium  of  exchange. 

The  mile  is  a  measure  of  distance ;  the  acre,  of 
surface ;  the  gallon,  of  capacity;  the  pound,  of 
weight ;  money,  of  value. 

Various  substances  have  been  employed  for 
money.  Barbarous  tribes  have  used  shells ;  hun- 
ters, furs ;  fishermen,  fish  and  salt ;  pastoral 
tribes,  cattle,  sheep,  and  goats ;  agriculturists, 
wheat,  corn,  fruit,  tobacco.  The  American  Indians 
used  coal,  lignite,  bone,  mica,  pearl,  carnelian, 
jasper,  agate,  and  various  other  things.  But  the 
money  most  commonly  used  was  wampum,  a 
species  of  spiral  fresh-water  shell. 

The  ancient  Greeks  and  the  Anglo-Saxons 
employed  cattle  and  slaves  for  money.  The  Car- 
thaginians used  leather ;  the  Abyssinians,  salt. 
Tobacco  was  a  legal  tender  in  Virginia  in  1660; 
wheat  in  Massachusetts  in  1641. 


MONEY.  43 

But  there  are  objections  to  all  these  sub- 
stances. 

As  money  is  a  measure  of  value,  it  must  pos- 
sess value  in  itself,  or  must  represent  intrinsic 
value,  A  measure  of  length  must  have  length ; 
a  measure  of  capacity,  capacity ;  a  measure  of 
quantity,  quantity.  In  like  manner  a  measure  of 
value  must  have  value.  A  standard  of  value 
must  be  valuable.  Like  measures  like,  and  when 
any  article  ceases  to  possess  or  represent  value,  it 
will  no  longer  serve  as  a  medium  of  exchange. 
No  one  wishes  to  exchange  a  valuable  commodity 
for  a  worthless  one.  Hence,  money  should  have 
a  permanent  value,  independent  of  time,  distance, 
or  any  other  circumstance. 

But  in  order  to  be  universally  desirable,  money 
must  possess  peculiar  properties. 

//  must  be  imperishable.  It  must  be  a  substance 
which  cannot  be  injured  by  climate,  burned  by 
fire,  destroyed  by  time. 

//  tniist  be  divisible  without  loss,  so  that  it  can 
be  used  in  small  or  large  quantities  and  stamped 
at  pleasure. 

//  must  contain  great  value  in  small  bulk,  so  that 
it  can  be  conveniently  stored  and  readily  trans- 
ported. 

Its  supply  should  be  as  uniform  as  possible.  Its 
increase  and  decrease  should  not  be  so  rapid  as  to 
affect  suddenly  the  amount  in  circulation  and  con- 
sequently its  commercial  value. 


44  POLITICAL  ECONOMY. 

These  properties  are  essential  for  any  substance 
which  is  to  be  taken  as  a  unit  of  value. 

Political  .economists  have  usually  enumerated 
several  others,  which  at  least  are  very  desirable. 

Applying  the  four  tests  to  the  substances  pre- 
viously mentioned  as  having  been  used  for  money, 
they  all  appear  to  be  more  or  less  faulty.  Shells 
have  not  sufficient  intrinsic  value ;  fish,  salt, 
leather,  are  perishable  ;  agricultural  products  are 
too  bulky,  and  are  subject  to  rapid  increase  and 
decrease  in  quantity ;  cattle  and  slaves  may  die, 
they  cannot  be  kept  without  loss,  they  are  not 
devisable,  they  cannot  be  easily  transported.  The 
result  has  been  that  as  nations  have  emerged  from 
barbarism,  and  have  advanced  in  civilization,  they 
have  abandoned  these  crude  and  inconvenient 
forms  of  money,  and  have  adopted  gold  and  silver 
as  standards  of  value. 

These  two  metals  seem  to  possess  exactly  the 
qualities  requisite  for  money.  The  Creator  seems 
to  have  designed  them  for  that  special  purpose. 

At  first  they  were  weighed. 
.  Abraham  weighed  out  to  Ephron  four  hundred 
shekels  of  silver  to  purchase  the  burial-place  at 
Machpelah  eighteen  hundred  and  sixty  years  be- 
fore the  Christian  era.  This  is  the  earliest  record 
to  be  found  in  history  of  the  payment  of  money. 

The  custom  of  weighing  out  money  was  incon- 
venient and  unsatisfactory,  but,  this  being  the  best 
method  known,  it  was  continued  for  centuries. 


COINAGE   OF   MONEY.  45 

CHAPTER  XV. 

COINAGE    OF     MONEY. 

It  is  not  certainly  known  when  or  where  coins 
were  first  stamped  and  used.  Most  authorities 
assert  that  gold  and  silver  were  first  coined  by  the 
Lydians  about  eight  hundred  years  before  Christ. 
The  Romans  coined  silver  about  300  B.  C.  They 
coined  gold  about  200  B.  C.  But  at  the  present 
time  all  civilized  nations  use  one  or  both  of  these 
metals  for  money,  and  most  nations  use  also  cop- 
per, bronze,  or  nickel  for  the  smaller  classes  of 
coins. 

Coins  are  portions  of  metal  stamped  by  the 
sovereign  power  to  indicate  the  exact  amount  and 
quality  of  the  metal.  Many  persons  have  an  idea 
that  the  government  can  increase  or  decrease  the 
value  of  coin  by  altering  the  stamp  without  chang- 
ing the  amount  of  material.  Some  ignorant  people 
think  that  the  government  could  take  half-dollars 
and  stamp  them  dollars,  and  they  would  then  be 
worth  twice  as  much  as  they  were  before.  This 
has  been  tried  again  and  again,  and  has  always 
failed  ;  and  it  will  fail  as  long  as  it  remains  impos- 
sible for  man  to  create  something  out  of  nothing. 
Men  may  change  the  name  of  a  coin,  or  they  may 
reduce  the  weight  and  fineness  of  the  material, 
but  they  cannot  change  the  value  of  the  same 
amount  and  quality  of  metal  by  such  a  change. 


46  POLITICAL   ECONOMY. 

Formerly  it  was  considered  that  the  expenses 
for  vSupporting  the  government  must  be  paid  by 
the  king  from  his  revenues.  Hence,  when  the 
kings  of  Europe  became  greatly  involved  in  debt, 
they  debased  the  coin  of  the  realm  by  decreas- 
ing its  weight  and  fineness.  Thus  not  only  the 
creditors  of  the  king  were  defrauded,  but  every 
creditor  in  the  kingdom.  If  a  king  owes  a  cred- 
itor one  hundred  pounds  of  silver,  and  then  makes 
a  decree  that  a  half  pound  shall  be  called  a 
pound,  because  he  possesses  supreme  authority, 
then  fifty  pounds  of  silver  will  pay  the  debt.  But 
the  creditor  receive  only  half  the  value  which 
was  due  him.  .  If  he  goes  into  the  markets  of  the 
world  he  can  purchase  only  half  as  much  as  he 
could  with  the  hundred  pounds.  If  he  wishes 
to  pay  a  debt  already  contracted,  it  enables  him 
to  defraud  his  creditors  of  one  half  the  debt 
which  he  honestly  owes  him.  This  debasing  of 
the  coin  enabled  the  king  to  cheat  his  creditors, 
and  licensed  every  debtor  in  the  kingdom  to  legally 
defraud  those  whom  he  honestly  owed.  Changing 
the  weight  or  fineness  of  the  coins  will  have  the 
same  effect  in  regard  to  value  as  a  change  in  the 
length  of  the  yardstick  would  have  in  respect  to 
measure. 

If  a  person  has  agreed  to  furnish  one  hundred 
yards  of  cloth  for  a  specified  amount,  and  after- 
wards the  yardstick  is  shortened  one  half,  he  will 
be  obliged  to  deliver  only  half  as  mugh  cloth  as  he 


COINAGE   OF    MONEY.  47 

agreed  to  deliver.  Thus  he  gains,  and  the  other 
party  loses,  just  in  proportion  to  the  shortening  of 
the  yardstick. 

But  if  the  yardstick  should  be  made  twice  as 
long  as  it  was  when  the  contract  was  made,  then 
the  result  would  be  exactly  opposite.  The  debtor 
would  be  required  to  deliver  twice  as  much  cloth, 
and  the  creditor  would  receive  twice  as  much  as 
he  ought. 

So,  if  a  contract  is  made  to  deliver  a  specified 
number  of  yards  of  cloth  at  a  stated  time  in  the 
future,  then  a  change  in  the  standard  of  measure- 
ment would  change  the  nature  of  the  contract, 
and  one  party  would  defraud  the  other  if  the  same 
number  of  yards  should  be  delivered. 

A  similar  result  takes  place  when  the  standard 
of  value  is  changed.  If  the  sovereign  authority 
decrees  that  a  half  dollar  shall  be  stamped  a  dol- 
lar, and  that  it  shall  be  a  legal  tender  for  that 
amount  in  payment  of  all  debts  both  public  and 
private,  then  every  creditor  will  receive  just  half 
as  much  real  value  as  is  honestly  his  du.e,  and 
every  debtor  will  be  relieved  of  half  of  what  he 
ought  to  pay. 

It  took  a  long  time  to  establish  the  fact  that 
governments  could  not  tamper  with  the  coinage 
without  undermining  the  very  foundations  of  public 
confidence,  destroying  the  validity  of  contracts, 
and  legalizing  wholesale  fraud.  Nothing  but  the 
practical  experience  of  centuries  ever  convinced 


48  POLITICAL   ECONOMY. 

kings  and  rulers  that  something  could  not  be  cre- 
ated out  of  nothing  by  human  power, 

Greece,  Rome,  France,  Spain,  England,  and 
most  other  nations,  at  some  time  have  tried  the 
experiment,  and  disaster  has  invariably  followed. 
And  it  now  seems  to  be  an  established  principle 
among  civilized  nations  that  the  unit  of  measure 
shall  not  be  changed ;  that  the  standard  of  value 
shall  not  be  tampered  with;  that  contracts  shall 
be  considered  sacred. 


CHAPTER   XVI. 

THE  DOLLAR,  OR  UNIT  OF  VALUE. 

Another  question  which  has  caused  a  great 
amount  of  discussion  is  this :  whether  the  unit  of 
measure  shall  be  made  of  gold  or  silver.  In  the 
United  States,  as  the  dollar  is  the  unit  of  value, 
some  have  argued  that  the  unit  should  be  made  of 
silver ;  that  a  certain  amount  of  silver,  sufficient 
to  make  a  coin  convenient  for  use,  should  be 
stamped  a  dollar,  and  that  these  dollars  should  be 
legal  tender  for  the  payment  of  all  debts  both 
public  and  private ;  that  the  smaller  coins  should 
be  proportional  parts  of  the  unit ;  that  silver 
should  be  the  basis  of  value  ;  and  that  the  weight 
and  fineness  of  the  gold  dollar  should  be  regulated 
by  the  price  of  gold  in  the  market  when  compared 
with  silver.     The  objection  to  this  theory  is  that 


THE  DOLLAR,  OR  UNIT  OF  VALUE.      49 

silver  is  too  bulky  to  be  made  a  legal  tender  for 
the  payment  of  large  amounts ;  that  it  is  conve- 
nient for  the  fractional  parts  of  a  dollar,  but  that 
it  should  not  be  made  the  unit  of  value. 

Others  have  contended  that  gold  should  be 
made  the  unit  for  the  measure  of  value ;  that  a 
certain  number  of  grains  of  gold  should  be  con- 
sidered a  dollar  ;  that  gold  should  be  a  legal  ten- 
der for  the  payment  of  all  debts  ;  that  the  standard 
should  never  be  changed,  and  that  silver  should  be 
legal  tender  for  parts  of  dollars  only. 

Still  others  have  argued  that  both  should  be 
standards  of  value.  It  is  said  that  as  we  have  the 
rod  for  measuring  land,  the  yard  for  cloth,  the  foot 
for  boards,  so  we  may  have  the  gold  eagle  as  a 
measure  for  large  amounts,  the  silver  dollar  as  a 
measure  of  less  sums,  and  the  copper  cent  as  the 
measure  of  the  smallest.  In  this  case  the  amount 
of  indebtedness  which  could  be  paid  by  the  cheaper 
coins  should  be  limited  by  law,  or  the  transpor- 
tation might  become  a  burden. 

But  the  objection  to  this  theory  of  a  double 
standard  is  that  the  relative  prices  of  the  three 
metals  is  continually  changing.  Hence,  the  anal- 
ogy of  the  rod,  the  yard,  the  foot,  does  not  hold 
good  in  this  case. 

After  the  gold  mines  of  Australia  and  California 
were  discovered,  the  relative  value  of  gold,  as  com- 
pared with  silver,  in  the  markets  of  the  world,  was 
considerably  decreased. 


50  POLITICAL  ECONOMY. 

But  when  the  mines  of  Nevada  began  to  fur- 
nish such  vast  quantities  of  silver,  the  effect  was 
exactly  opposite,  and  silver  became  relatively 
very  much  the  cheaper  metal.  Hence,  it  will  be 
perceived  that  when  there  are  two  standards  of 
value  there  should  be  an  adjustment  of  the  ratio 
of  quantity  whenever  the  commercial  value  of 
the  two  metals  differs  essentially  from  the  legal- 
tender  value.  Slight  differences  will  not  prevent 
their  common  circulation.  But  if  there  is  much 
discrepancy ;  if  a  dollar  in  silver  will  pay  the  same 
amount  of  debt  as  a  dollar  in  gold,  and  at  the 
same  time  a  dollar  of  silver  can  be  purchased 
cheaper  than  a  dollar  in  gold,  theh  debts  will  be 
paid  with  silver  dollars,  and  gold  will  be  sold  to 
purchase  the  silver.  In  other  words,  the  cheaper 
dollar  will  in  time  drive  the  dearer  from  circula- 
tion. 

The  weight  of  a  gold  eagle  in  the  currency  of 
the  United  States  is  258  grains,  nine-tenths  pure 
gold.  The  weight  of  the  silver  dollar  is  412)^ 
grains,  nine-tenths  pure  silver.  The  remaining 
tenth  is  composed  of  an  alloy  of  harder  metal. 
This  ratio  was  established  long  ago,  and  was  based 
upon  the  relative  commercial  value  of  the  two 
metals  in  the  markets  of  the  world.  But  since 
that  time  there  have  been  great  and  rapid  changes. 
Hence  there  should  be  a  readjustment  of  the 
ratio  of  the  weight  of  gold  and  silver  dollars. 
The  only  change  necessary  is  to  make  the  silver 


THE  DOLLAR,  OR  UNIT  OF  VALUE.      5 1 

dollar  heavy  enough  to  be  worth  one  tenth  part  of 
a  gold  eagle,  to  limit  the  amount  for  which  silver 
shall  be  a  legal  tender,  to  repeal  the  present  law 
which  compels  the  coinage  of  2,000,000  silver 
dollars  per  month,  and  let  the  coinage  be  free  and 
unlimited  in  amount.  But  if  the  present  law  is 
continued,  the  silver  will  drive  the  gold  from  cir- 
culation. 

Seigniorage  is  the  charge  which  the  government 
makes  for  coining  money.  The  United  States 
government,  and  that  of  Great  Britain,  coin  gold 
for  individuals  free  of  charge ;  but  there  seems  to 
be  no  good  reason  why  the  government  should 
coin  money  for  citizens  any  more  than  it  should 
make  shoes  or  hats  free  of  charge. 

If  a  small  percentage  is  deducted  to  pay  for 
coining  money,  it  will  be  worth  more  than  un- 
coined metal.  Hence,  debts  due  to  foreigners 
will  be  paid  in  bullion,  and  coins  will  be  retained 
at  home.  Thus,  also,  uncoined  gold  and  silver 
will  be  used  in  the  arts  instead  of  coin,  because  it 
will  be  cheaper.  But  if  no  charge  for  coinage  is 
made  by  the  government,  the  mint  will  be  kept  at 
work  recoining  money  a  large  part  of  the  time. 

The  theory  in  regard  to  coinage,  which  practice 
will  probably  demonstrate,  is  this  :  that  the  mint 
should  be  under  the  direct  control  of  the  govern- 
ment ;  that  gold  and  silver  should  be  coined  for 
individuals  when  presented  in  proper  quantities  ; 
that  an  amount  sufficient  to  pay  the  expense  of 


$ik  POLITICAL  ECONOMY. 

coinage  should  be  charged  by  the  government ; 
that  the  ratio  between  the  weight  and  fineness  of 
gold  and  silver  should  be  properly  adjusted,  so  that 
the  commercial  value  and  the  mint  value  should  be 
as  nearly  equal  as  practicable ;  that  gold  should  be 
a  legal  tender  for  any  amount ;  that  silver  should 
be  a  legal  tender  for  a  limited  amount ;  that  all 
restrictions  on  the  amount  to  be  coined  should  be 
removed  ;  and  that  demand  should  regulate  the 
supply  of  gold  and  silver  coins. 


CHAPTER   XVII. 

BANKS. 

A  BANK  is  an  establishment  for  the  custody, 
loaning,  exchange,  and  issue  of  money.  As  there 
are  four  distinct  kinds  of  business  done  by  banks, 
they  are  usually  divided  into  four  classes. 

1.  A  bank  of  deposit  is  one  in  which  money  is 
deposited  for  safe  keeping.  Very  few  modern 
banks,  however,  confine  their  business  simply  to 
receiving  deposits. 

2.  A  hank  of  discount  is  one  from  which  money 
is  loaned.     Usually  these  two  classes  are  united. 

3.  A  bank  of  exchange  is  one  from  which  drafts, 
checks,  certificates,  and  bills  of  exchange  are  issued 
to  facilitate  the  transmission  of  funds. 

4.  A  bank  of  issue  is  one  from  which  demand 
notes  are  issued  and  circulated  as  money. 


BANKS.  53 

History  of  hanks.  There  were  banks  in  ancient 
Greece  and  Rome.  Their  business  corresponded 
very  nearly  with  that  of  modern  private  bankers. 
They  received  money  on  deposit,  paying  a  low  rate 
of  interest,  and  loaned  it  to  other  parties  at  a 
higher  rate.  They  also  issued  bills  of  exchange  ; 
but  they  did  not  issue  demand  notes  for  circula- 
tion as  money.  There  was,  however,  no  great 
banking  system  like  that  of  the  present  time. 

When  civilization  was  overthrown  by  hordes  of 
barbarians  from  the  north,  the  Roman  system  of 
finance  was  destroyed ;  and  from  that  time  till  the 
twelfth  century  there  were  neither  banks  nor 
bankers  worthy  of  the  name.  But  when  civiliza- 
tion began  to  revive,  the  financial  system  also 
improved. 

The  Bank  of  Veftice  was  established  about  the 
middle  of  the  twelfth  century.  In  the  year  1156, 
a  forced  loan  was  levied,  upon  which  interest  at 
four  per  cent  was  to  be  paid,  and  a  chamber  of 
loans  was  established  for  the  management  of  the 
debt.  This  chamber  of  loans  finally  became  the 
Bank  of  Venice,  which  continued  in  existence  more 
than  six  hundred  years. 

The  Bank  of  Barcelona  was  established  in  1401, 
and  was  called  the  table  of  exchange.  It  received 
deposits  and  issued  bills  of  exchange. 

The  Bank  of  Genoa  was  established  in  1407 ; 
the  Bank  of  Amsterdam  in  1635. 

All  these  banks  were  organized  for  the  purpose 


54  POLITICAL  ECONOMY. 

of  assisting  in  the  management  of  the  public  debt, 
but  they  soon  became  places  for  the  deposit  of 
money  by  private  parties. 

Afterward,  when  those  who  had  money  in  the 
bank  wished  to  make  payments,  they  gave  orders 
on  the  bank,  and  transfers  of  credit  were  made  on 
the  books  without  any  payment  of  money.  This 
was  the  origin  of  bills  of  exchange,  drafts,  and 
checks.  These  were  simple  orders  for  the  pay- 
ment of  money. 

Later,  when  banks  were  established  in  various 
commercial  cities  in  different  countries,  debts 
were  paid  by  means  of  bills  of  exchange,  in  foreign 
nations,  by  the  aid  of  banks. 

At  first,  all  the  coins  deposited  were  kept  in  the 
bank,  and  a  small  charge  was  made  for  keeping  the 
funds,  for  it  was  found  that  the  average  amount 
of  deposits  in  ordinary  times  was  about  equal  to 
the  sum  of  the  withdrawals;  And  it  was  also 
learned,  by  experience,  that  loans  of  deposits  could 
be  made  for  short  time,  and  when  emergency  came, 
the  loans  could  be  called  in  without  much  delay. 
And  thus  at  length  it  was  found  by  experience 
that  quite  a  large  proportion  of  the  deposits  could 
be  loaned,  and  an  income  obtained,  without  any 
danger  of  ever  being  short  of  funds  to  meet  the 
demands  of  depositors. 

Thus  it  will  be  perceived  that  the  establishment 
of  banks  was  the  result  of  an  effort  to  meet  a  pub- 
lic want. 


BANKS.  55 

The  Bank  of  England.  The  Bank  of  England 
was  organized  in  1694.  Previous  to  the  accession 
of  WilHam  and  Mary  to  the  throne  of  England,  the 
payment  of  the  national  debt  was  supposed  to  de- 
volve upon  the  monarch.  But  William  took  a 
different  view  of  the  subject.  He  assumed  that 
the  debt  was  contracted  for  the  benefit  of  the 
people,  and  should  be  paid  by  the  people. 

Six  years  after  the  revolution  of  1688  the  Bank 
of  England  was  established,  with  a  capital  of 
1,200,000  pounds  sterling.  The  capital  was  all 
invested  in  government  securities,  for  which  the 
bank  received  interest  at  the  rate  of  eight  per 
cent  annually.  The  bank  assumed  the  responsi- 
bility of  paying  interest  on  the  public  debt,  for 
which  it  enjoyed  certain  exclusive  privileges. 

The  capital  stock  has  been  increased  from  time 
to  time,  but  usually  the  whole  has  been  invested 
in  government  securities. 

From  the  time  of  its  organization  till  the  pres- 
ent day  the  Bank  of  England  has  served  as  a  grand 
regulator  of  the  currency,  not  only  of  Great  Bri- 
tain but  of  the  whole  civilized  world.  When  gold 
begins  to  flow  out  of  England,  the  rate  of  interest 
is  increased  until  the  exportation  is  checked. 
When  specie  begins  to  return  toward  London  the 
rate  is  reduced. 

Some  eminent  financiers  have  contended  that 
there  ought  to  be  a  mammoth  bank  in  the  United 
States,  sufficiently  strong  to  regulate  the  rate  of 


56  POLITICAL   ECONOMY. 

interest   in  this   country,   and   thus   prevent  the 
excessive  exportation  of  specie. 

For  centuries  London  has  been  the  commercial 
centre  of  the  business  world,  and  the  Bank  of 
England  has  been  the  great  heart  of  financial  cir- 
culation. But  some  sanguine  Americans  believe 
that  the  time  will  come  when  the  seat  of  the 
financial  empire  will  be  transferred  to  New  York. 
Time  and  circumstances  will  determine  this  ques- 
tion. Financial  centres  are  the  results  of  adequate 
causes  and  not  of  accidental  circumstances. 


CHAPTER   XVIII. 

BANKS  OF  THE  UNITED  STATES. 

Soon  after  the  commencement  of  the  American 
revolution,  Congress  began  to  issue  what  was 
called  continental  money  —  paper  money.  This 
issue  was  rapidly  increased  until  more  than  ;^300,- 
000,000  were  in  circulation.  The  result  was  what 
might  have  been  expected.  The  value  of  the 
revolutionary  currency  decreased  until  it  became 
almost  entirely  worthless. 

Under  such  circumstances  it  became  absolutely 
necessary  that  there  should  be  some  kind  of  finan- 
cial legislation  to  save  the  colonies  from  absolute 
bankruptcy.  After  considerable  delay  and  a  great 
deal  of  discussion,  the  last  day  of  the  year  1781 
Congress  incorporated  — 


BANKS   OF   THE   UNITED   STATES.  57 

The  Bank  of  North  America,  This  bank  was 
organized  with  a  capital  of  1^400,000,  of  which 
the  government  subscribed  $2^0,000).  By  owning 
more  than  half  the  stock,  the  government  had  a 
controlling  interest.  The  bank  was  located  in 
Philadelphia,  and  a  charter  was  obtained  from 
Pennsylvania,  in  addition  to  that  from  Congress. 
Its  circulating  notes  were  made  receivable  by  the 
government  for  taxes,  duties,  and  debts  due  the 
United  States.  It  exerted  an  important  influence 
on  the  finances  of  the  country  during  the  war  for 
independence.  Some  have  even  supposed  that  the 
war  could  not  have  been  brought  to  a  successful 
termination  without  the  aid  derived  from  the  Bank 
of  North  America. 

The  Bank  of  the  United  States.  In  December, 
1790,  Alexander  Hamilton,  then  Secretary  of  the 
Treasury,  submitted  to  Congress  his  celebrated  re- 
port recommending  the  establishment  of  a  national 
bank.  The  project  was  strenuously  opposed  by 
able  men  in  both  houses  on  constitutional  grounds. 
But  in  spite  of  opposition,  the  Bank  of  the  United 
States  was  chartered  in  1791,  with  a  capital  of  ten 
millions,  two  millions  of  which  were  subscribed  by 
the  United  States. 

The  capital  stock  was  payable  one  fourth  in 
specie,  and  three  fourths  in  public  securities. 
There  were  twenty-five  directors,  one  of  whom 
was  chosen  president. 

The  circulating  notes  were  redeemable  in  coin, 


58  POLITICAL   ECONOMY. 

and  receivable  for  government  dues.  It  was  char- 
tered for  twenty  years. 

The  friends  of  the  bank  contended  that  it  ex- 
erted a  beneficial  influence  in  establishing  the 
credit  of  the  United  States,  and  in  promoting  a 
stable  financial  system  in  the  nation.  They  also 
asserted  that  there  was  ample  authority  in  the 
constitution  for  the  charter  of  the  banking  associ- 
ation, but  the  enemies  of  the  bank  contended  that 
Congress  had  no  authority  to  grant  such  a  charter, 
that  it  established  a  monopoly  injurious  to  tKe 
community,  and  that  it  was  a  constant  menace  to 
the  liberties  of  the  people. 

Politicians,  taking  advantage  of  the  ignorance  of 
the  people  in  regard  to  financial  affairs,  excited  the 
prejudice  of  the  masses  against  the  bank  in  every 
way  possible.  Time  seemed  to  increase  rather 
than  diminish  the  opposition.  The  result  was, 
that  when  an  application  was  made  for  a  re- 
newal of  the  charter,  the  measure  was  defeated  in 
Congress,  and  the  bank  was  compelled  to  wind  up 
its  affairs  in  1811,  twenty  years  after  its  organi- 
zation. 

The  average  dividend  for  the  whole  twenty  years 
which  was  paid  to  the  stockholders  was  about 
eight  and  one  third  per  cent.  At  the  final  settle- 
ment, the  stockholders  received  about  eight  and 
one  half  per  cent  more  than  the  par  value  of  the 
stock. 

The  calm  judgment  of  history  will  probably  be, 


BANKS  OF  THE  UNITED  STATES.       59 

that  this  first  bank  of  the  United  States  was  well 
managed  by  its  officers ;  was  profitable  to  the 
stockholders ;  was  useful  to  the  government ;  was 
beneficial  to  the  people. 

But  this  bank  should  not  be  confounded  with 
the  one  which  will  next  be  described,  which  was 
very  differently  managed. 

The  second  Baftk  of  the  United  States.  The 
charter  of  the  first  United  States  bank  expired  in 
181 1.  The  second  war  with  England  commenced 
in  1812.  During  this  war  the  finances  of  the  nation 
became  very  much  deranged,  as  is  usually  the  case 
in  time  of  war.  It  was  then  argued  that  another 
bank  must  be  organized  in  order  to  remedy  the 
existing  evils.  Even  some  who  had  strenuously 
opposed  the  re-charter  of  the  old  bank  became 
champions  for  the  charter  of  the  new.  They 
asserted  that  the  force  of  circumstances  and  the 
logic  of  events  justified  their  change  of  opinion  and 
action. 

After  much  debate,  in  1816,  the  second  Bank  of 
the  United  States  received  a  charter  for  twenty 
years.  Its  capital  stock  was  thirty-five  million 
dollars,,  of  which  the  United  States  subscribed 
seven  millions,  and  paid  the  amount  in  five  per 
cent  government  securities. 

The  bank  had  branches  in  several  of  the  large 
cities.  These  banks  collected  the  revenue,  re- 
ceived the  deposits,  and  paid  the  debts  of  the 
government. 


60  POLITICAL  ECONOMY. 

General  Jackson  and  his  party  opposed  the  re- 
charter.  Giants  in  Congress  were  opposed  to 
each  other,  but  the  opponents  of  the  bank  suc- 
ceeded in  preventing  its  re-charter,  and  it  expired 
by  limitation  in  1836. 

When  the  affairs  of  the  bank  were  settled,  and 
its  debts  all  paid,  there  was  nothing  remaining 
for  the  stockholders.  The  whole  of  the  capital 
stock  had  been  lost.  The  state  of  the  bank  was 
even  worse  than  its  most  bitter  enemies  had  sup- 
posed. 

The  history  of  this  contest  will  be  found  in 
Thomas  H.  Benton's  Thirty  Years'  View.  It  is 
well  worth  the  careful  study  of  every  person  inter- 
ested in  financial  affairs. 


CHAPTER   XIX. 

STATE    BANKS. 

In  the  early  years  of  the  republic,  there  was 
considerable  opposition  to  the  charter  of  national 
banks  by  the  Congress  of  the  United  States.  But 
there  was  no  doubt  in  regard  to  the  constitutional 
right  of  the  State  legislatures  to  authorize  the 
organization  of  State  banks. 

The  first  State  bank  was  established  in  Massa- 
chusetts in  1784,  only  about  three  years  after  the 
charter  of  the  Bank  of  North  America.  From 
that  time  the  number  increased  rapidly,  and  soon 


STATE   BANKS. 


6i 


they  became   important   factors   in   the   financial 
system  of  the  United  States. 

But  there  were  serious  objections  to  these  State 
banks  of  issue.  There  was  no  uniformity.  Each 
State  had  its  own  banking  law,  and  each  different 
from  every  other.  In  the  older  States,  where  the 
methods  of  doing  business  were  clearly  defined, 
where  capital  was  plenty,  where  credit  was  firmly 
established,  the  laws  authorizing  the  establish- 
ment and  regulating  the  management  of  the 
banks  were  comparatively  strict.  But  in  the  newly 
settled  States,  where  money  was  scarce,  where  the 
rate  of  interest  was  high,  where  prices  were  in- 
flated, where  everything  was  unstable,  where  there 
was  a  popular  demand  for  an  increase  of  circula- 
tion ;  the  provisions  of  the  banking  laws  were  less 
guarded.  The  results  were  what  might  have  been 
expected.  There  were  numerous  failures  of  the 
State  banks.  Even  in  the  most  prosperous  times, 
in  States  where  the  laws  were  the  most  stringent, 
failures  of  banks  were  not  uncommon.  But  in  the 
West  and  South  the  failures  were  far  more  numer- 
ous. The  aggregate  loss  was  very  great.  In  times 
of  financial  panic  the  results  were  extremely  dis- 
a.strous.  Stockholders,  depositors,  and  bill-holders 
were  common  sufferers.  As  there  was  no  national 
supervision  of  the  banks  of  the  United  States 
under  the  old  State  bank  system,  it  is  very  difficult 
to  obtain  accurate  statistics.  But  it  is  stated  upon 
what  seems  to  be  good  authority  that  no  less  than 


62  POLITICAL   ECONOMY. 

one  hundred  and  ninety-five  failed  and  became 
bankrupt  between  1811  and  1820.  In  the  crash  of 
1839-40  about  one  hundred  and  eighty  banks  were 
totally  wrecked,  and  their  circulation  became 
utterly  worthless. 

These  banks  were  required  to  redeem  their 
circulating  notes  at  their  counters  on  demand,  and 
were  obliged  to  keep  a  certain  amount  of  specie 
on  hand,  at  all  times,  for  that  purpose. 

But  most  of  the  banks  were  permitted  by  their 
charters  to  issue  a  larger  amount  of  circulating 
notes  than  the  total  of  their  capital  stock  —  in 
some  States,  three  or  even  four  times  as  much. 
When  public  confidence  was  not  disturbed,  when 
there  was  no  special  demand  for  specie  for  expor- 
tation, there  was  no  difficulty  in  redeeming  the 
notes  as  they  were  presented. 

But  when  public  confidence  was  shaken,  the 
people  demanded  specie  for  their  bank  notes.  But 
there  was  no  possibility  of  meeting  the  demand. 
Suspension  of  specie  payments  followed,  a  financial 
panic  was  precipitated,  the  banks  failed,  and  the 
people  suffered. 

Thus  there  was  undue  expansion,  inflation, 
speculation ;  and  then  contraction,  collapse,  bank- 
ruptcy. These  were  the  logical  results  of  such  a 
system  of  banking. 

There  was  no  uniformity  of  organization  of  the 
State  banks,  because  they  were  established  accord- 
ing to  the  laws  of  the  several  States.     There  could 


STATE    BANKS.  63 

be  no  general  supervision,  for  they  were  local  insti- 
tutions, the  general  government  had  no  control 
over  them.  There  was  no  effectual  means  of 
detecting  counterfeits,  because  there  were  so  many 
different  issues  that  no  one  but  an  expert  could 
distinguish  the  spurious  from  the  genuine.  There 
was  no  remedy  for  the  depreciation  of  the  value 
of  the  circulating  notes,  for  there  was  no  guaranty 
of  final  redemption.  There  was  no  method  of 
inspiring  public  confidence  in  the  solvency  of  the 
banks,  for  there  had  been  so  many  failures  that  the 
people  distrusted  the  whole  of  them.  There  was 
no  assurance  that  specie  payment  would  continue, 
for  the  amount  of  circulation  greatly  exceeded  the 
total  capital  stock,  and  a  financial  panic  would  at 
any  time  precipitate  a  suspension  of  specie  pay- 
ment. •There  was  no  uniformity  in  the  value  of 
the  bank  notes,  because  no  one  knew  the  financial 
standing  of  the  banks  outside  of  his  immediate 
location;  hence  there  was  great  difficulty  in  set- 
tling indebtedness  between  different  localities. 
Bankers  sometimes  charged  a  large  per  cent  for 
exchanging  money. 

Statesmen  and  financiers  saw  all  these  difficul- 
ties, but  they  did  not  apply  the  proper  remedies. 
The  evils  of  the  system  had  grown  up  with  the 
system,  and  the  great  mass  of  men  supposed  that 
they  were  inseparable  from  it.  Many  men  feared 
to  place  the  banking  system  under  the  control  of 
the  general  government,  lest  there  should  be  too 


64  POLITICAL   ECONOMY. 

great  centralization  of  power.  Others  sincerely  be- 
lieved  that  Congress  had  no  constitutional  author- 
ity to  establish  and  control  the  banking  system. 

Such  was  the  financial  state  when  the  civil  war 
commenced  in  1861.  In  a  few  months  all  the 
banks  throughout  the  country  suspended  specie 
payment.  The  system  proved  to  be  inadequate 
for  the  emergency.  The  government  needed 
money  for  the  purpose  of  carrying  on  the  war,  and 
it  was  proposed  to  obtain  a  large  amount  through 
the  creation  of  national  banks.  A  law  was  en- 
acted by  Congress,  authorizing  the  formation  of 
national  banks,  a  certain  portion  of  whose  capital 
stock  should  be  invested  in  government  bonds. 
And  State  banks  were  permitted  to  reorganize  as 
national  banks  under  very  favorable  circumstances. 
At  the  same  time  the  continuance  or  establishment 
of  State  banks  of  issue  was  discouraged,  by  render- 
ing them  unprofitable  to  their  stockholders. 

The  government  having  the  constitutional  right 
of  taxation,  a  tax  of  ten  per  cent  was  levied  on  all 
the  circulating  notes  issued  by  the  State  banks. 
The  effect  of  this  was  to  cause  all  these  banks  to 
close  up  their  affairs,  and  to  give  up  their  charters, 
or  cease  issuing  circulating  notes  ;  or  to  reorganize 
as  national  banks.  But  the  banks  were  allowed 
so  favorable  terms  for  changing  their  charters,  that 
the  most  of  them  were  very  glad  to  reorganize 
under  the  national  banking  act.  Had  the  change 
been  made  during  a  time  of  peace,  it  might  have 


STATE   BANKS.  6$ 

produced  prolonged  discussion  in  regard  to  the 
constitutional  right  of  the  general  government  to 
control  the  banking  system.  But  the  people  were 
so  interested  in  the  war  and  the  events  connected 
with  it,  that  they  troubled  themselves  very  little 
in  regard  to  the  question  whether  the  State  or  the 
nation  should  have  control  of  the  banks. 

In  this  way,  the  control  of  nearly  the  whole 
banking  system  was  transferred  from  the  States  to 
the  general  government,  with  scarce  any  oppo- 
sition. 

In  some  States,  banks  are  still  organized  under 
State  laws,  but  they  do  not  issue  and  circulate 
notes.  This  is  specially  true  in  the  State  of  New 
York. 

As  the  national  debt  and  the  amount  of  govern- 
ment bonds  diminishes,  as  the  premium  on  the 
bonds  becomes  greater  and  the  income  less,  the 
tendency  to  organize  under  State  authority  will 
become  stronger. 

And  it  may  be  well  to  remember  that  the  only 
restriction  upon  the  State  banking  system  would 
be  removed  by  the  repeal  of  one  clause  of  the  in- 
ternal revenue  act.  Let  the  tax  on  the  circulation 
of  the  State  banks  be  removed,  and  there  would 
be  danger  of  a  return  to  the  old  system,  because 
it  is  thought  that  banking  under  most  of  the  State 
laws,  provided  that  the  banks  could  issue  circulat- 
ing notes  without  taxation,  would  be  more  profita- 
ble than  under  the  national  banking  act. 


66  POLITICAL   ECONOMY. 

But  those  who  remember  the  inconveniences, 
the  disadvantages,  the  losses  incident  to  the  old 
system  of  banking,  will  not  care  to  see  it  again 
established  in  this  country. 


CHAPTER    XX. 

SAVINGS   BANKS. 

Banks  of  loan  have  always  been  considered 
commercial  institutions,  designed  to  aid  business 
men  in  financial  affairs.  One  very  important  use 
of  these  banks  is  to  receive  the  surplus  money  of 
the  business  men  of  the  community,  and  loan  as 
much  as  they  can  spare  safely  to  those  who  need  it. 
In  ordinary  times  the  average  amount  of  daily  de- 
posits is  about  equal  to  that  of  the  withdrawals. 
And  the  best  financiers  usually  consider  that  about 
two  thirds  of  the  deposits  may  be  safely  loaned, 
provided  that  the  loans  are  for  a  short  time,  on  per- 
sonal security,  which  can  readily  be  converted  into 
money  if  payments  are  not  made  at  maturity. 
Thus,  through  the  agency  of  the  banks,  a  large 
share  of  the  surplus  money  of  the  community  may 
be  collected,  and  about  two  thirds  of  it  used.  In 
this  way  the  banks  receive  interest  on  a  large 
part  of  their  deposits,  and  business  men  are  ac- 
commodated with  loans  when  they  need  money. 

But  the  depositors  receive  no  interest ;  and  they 
do  not  expect  it,  because  the  money  is  placed  in 


SAVINGS   BANKS.  6/ 

the  banks  for  a  few  days  only,  and  for  the  deposi- 
tor's convenience.  The  arrangement  is  satisfac- 
tory and  advantageous  to  both  parties. 

But  these  banks  have  been  found  mainly  ser- 
viceable to  business  men.  If  laboring  men  have 
more  money  than  they  need  for  immediate  use,  they 
wish  to  place  it  where  they  can  obtain  a  reason- 
able amount  of  interest.  Banks  of  issue  and  dis- 
count have  never  met  this  demand  of  the  laboring 
classes. 

To  supply  this  want,  savings  banks  were  organ- 
ized toward  the  close  of  the  eighteenth  century. 
These  banks  were  designed  to  receive  small 
amounts  and  pay  interest  on  balances,  compound- 
ing the  interest  periodically,  if  left  in  the  bank. 
Small  amounts  were  received  in  order  to  induce 
laborers  to  save  the  surplus  of  their  wages,  Itt- 
tcrest  was  allowed  on  small  sums  in  order  to  induce 
them  to  deposit  their  earnings  where  they  would 
accumulate.  Compound  interest  was  allowed  in 
order  to  induce  them  to  leave  the  money  in  the 
bank  a  long  time,  on  account  of  the  more  rapid 
increase  by  compounding. 

The  first  bank  of  this  kind  was  organized  at 
Hamburg  in  1778  ;  the  next  at  Berne  in  1787. 

Savings  banks  were  first  established  in  England 
early  in  the  present  century. 

The  first  savings  bank  in  the  United  States  was 
established  in  Philadelphia  in  18 16;  the  next  in 
Boston  the  same  year;  the  next  in  New  York  in 


68  POLITICAL  ECONOMY. 

1 8 19.  Since  that  time  their  number  has  rapidly 
increased. 

Some  of  these  savings  banks  are  organized  under 
general  laws  permitting  their  establishment.  Oth- 
ers have  charters  granted  by  the  State  legislatures, 
allowing  them  to  enjoy  special  privileges,  and  com- 
pelling them  to  conform  to  certain  rules  and  regu- 
lations. But  all  the  savings  banks  of  the  United 
States  are  established  in  accordance  with  State 
legislation,  are  subject  to  State  supervision,  and 
are  controlled  by  State  authority.  Hence,  while 
they  possess  the  same  general  features,  they  dif- 
fer in  some  minor  characteristics. 

They  receive  small  amounts,  sometimes  as  small 
as  five  cents.  They  loan  money  on  ample  security, 
largely  on  mortgages.  They  declare  dividends 
semi-annually,  some  even  quarterly.  They  com- 
pound the  interest  whenever  a  dividend  is  declared, 
provided  that  it  is  left  in  the  bank.  They  give  a 
pass-book  to  each  depositor,  which  must  be  pre- 
sented when  a  deposit  is  made  or  money  is  with- 
drawn, in  which  there  is  a  record  of 'every  debit 
and  credit  transaction.  The  record  in  the  pass- 
book is  a  duplicate  of  the  account  with  the  deposi- 
tor in  the  books  of  the  bank.  Notice  may  be 
required  from  the  depositors  when  money  is  to  be 
withdrawn. 

These  banks  are  organized  by  corporators,  man- 
aged by  trustees,  and  owned  by  the  depositors. 

They  have  usually  been  well  managed,  and  have 


SAVINGS   BANKS.  69 

been  very  beneficial  to  the  laboring  classes  where 
they  have  been  located. 

In  Great  Britain  a  system  of  savings  banks  is 
connected  with  the  post-office  department,  which 
has  proved  to  be  a  great  convenience  and  benefit. 

Efforts  have  been  made  in  the  United  States 
Congress  to  establish  a  similar  system  in  this 
country.  No  doubt  it  would  be  beneficial  to  the 
laboring  men  and  women  of  the  nation  ;  and  an 
expression  of  public  opinion,  in  the  form  of  peti- 
tions, should  be  placed  before  Congress,  so  that 
our  legislators  may  understand  the  wishes  of  the 
people.  Such  banks  would  be  absolutely  safe  and 
extremely  convenient. 

The  amount  to  be  deposited  at  one  time  should 
be  limited,  and  the  maximum  by  each  depositor 
should  also  be  limited. 

Every  post-office  above  a  certain  grade  should  be 
a  government  savings  bank.  Money  deposited  in 
one  office  should  be  payable  at  any  other.  Suffi- 
cient notice  should  be  required,  so  that  money  could 
be  obtained  from  other  offices  when  necessary. 

The  objection  has  been  made  that  such  a  sys- 
tem would  injure  the  existing  savings  banks  ;  but 
well-informed  business  men  think  that  there  is 
nothing  to  fear  from  this  cause. 


70  POLITICAL   ECONOMY. 

CHAPTER   XXI. 

UNITED    STATES    NATIONAL    BAN.vS. 

The  principal  corporate  powers  of  national  banks ^ 
granted  by  the  national  banking  act,  are  as  fol- 
lows :  — 

1.  To  adopt  and  use  a  corporate  seal. 

2.  To  have  succession  for  twenty  years. 

3.  To  make  contracts. 

4.  To  sue  and  be  sued. 

5.  To  select  directors  and  other  officers,  and 
define  their  duties. 

6.  To  adopt  by-laws  not  contrary  to  the  bank- 
ing laws. 

7.  To  discount  notes ;  to  receive  deposits ;  to 
buy,  sell,  and  exchange  coin  and  bullion  ;  to  loan 
money ;  to  obtain  and  issue  circulating  notes. 

Organization  of  Natio7ial  Banks,  i.  Articles  of 
association  must  be  drafted  and  approved  by  the 
Comptroller  of  the  Treasury. 

2.  The  capital  stock  must  be  subscribed. 

3.  The  stockholders  must  choose  a  board  of  di- 
rectors, not  less  than  five  in  number. 

4.  The  directors  will  select  one  of  their  number 
for  president,  and  appoint  other  necessary  officers. 

5.  The  officers  will  purchase  a  certain  amount 
of  interest-bearing  government  bonds,  and  deposit 
them  with  the  Treasurer  of  the  United  States  at 
Washington. 


UNITED   STATES   NATIONAL    BANKS.  7 1 

6.  The  Comptroller  of  the  Treasury  will  return 
to  the  bank  ninety  per  cent  of  the  par  value  of  the 
bonds  in  unsigned  bank  notes,  upon  which  there 
is  a  certification  that  bonds  are  deposited  in  the 
Treasury  to  secure  their  redemption. 

7.  These  notes  may  then  be  signed  by  the  pres- 
ident and  cashier  and  circulated  as  money. 

Banking  is  free.  There  is  no  monopoly  of  priv- 
ileges ;  no  charter  to  be  secured  ;  no  legislation 
necessary.  Any  five  citizens,  by  conforming  to 
the  provisions  of  the  general  banking  law  of  the 
United  States,  may  form  a  banking  association  at 
any  time. 

Any  person  may  become  a  stockholder  of  a 
national  bank  by  subscribing  for  a  share  of  the 
capital  stock  when  a  bank  is  organized  ;  or  he  may 
purchase  stock  at  public  or  private  sale,  just  as 
freely  as  he  can  purchase  merchandise.  Any  man, 
woman,  or  child  who  has  a  hundred  dollars  may 
buy  a  share  of  bank  stock  and  thus  become  a 
stockholder.  Hence  the  charge  that  the  banking 
system  is  a  monopoly  is  unjust  and  untrue. 

Capital  Stock. — The  capital  stock  of  a  national 
bank  cannot  be  less  than  two  hundred  thousand 
dollars  in  cities  of  fifty  thousand  inhabitants  ;  and 
not  less  than  one  hundred  thousand  in  cities  of 
less  than  fifty  thousand  inhabitants.  But  there 
is  a  provision  in  the  banking  law  that  the  Secre- 
tary of  the  Treasury  may  authorize  the  organiza- 
tion of  a  bank  with  a  capital  of  not  less  than  fifty 


72  POLITICAL   ECONOMY. 

thousand  dollars  in  any  city  or  town  with  less 
than  six  thousand  inhabitants,  if  he  thinks  the 
wants   of  the   public    demand   its   establishment. 

At  least  half  of  the  capital  must  be  paid  in 
before  commencing  business;  and  the  remaining 
portion  must  be  paid  in  at  the  rate  of  not  less  than 
one  fifth  monthly.  No  increase  nor  decrease  of 
the  capital  can  be  made  without  permission  from 
the  Comptroller.  The  capital  stock  is  divided  into 
shares  of  one  hundred  dollars  each.  Each  share 
entitles  its  holder  to  one  vote  for  the  choice  of 
directors,  and  in  regard  to  other  matters  which 
may  properly  come  before  the  stockholders.  Each 
shareholder  is  responsible  for  the  debts  of  the  bank 
to  an  extent  equal  to  the  amount  of  his  stock.  In 
other  words,  a  holder  of  bank  shares  is  liable  to 
lose  his  stock  and  an  equal  amount  of  his  private 
property,  if  necessary  to  satisfy  the  demands  made 
by  the  creditors  of  the  bank. 

Should  the  capital  stock  become  impaired,  by 
losses  or  otherwise,  it  must  be  made  good  by  an 
assessment  on  the  stockholders,  within  three 
months  after  notice  is  received  from  the  comp- 
troller. 

Each  bank  is  required,  before  making  a  dividend, 
to  set  aside  as  surplus  one  tenth  of  the  net  earn- 
ings since  the  last  dividend.  This  surplus  must 
be  set  apart  whenever  a  dividend  is  made,  until 
the  amount  is  equal  to  one  fifth  of  the  original 
capital.     This  can  be  used  for  ordinary  banking 


UNITED    STATES   NATIONAL   BANKS.  73 

purposes,  but  can  not  be  taken  for  the  payments 
of  dividends.  It  can  be  used  only  to  charge  off 
losses.  Thus  it  will  be  seen  that  careful  provision 
is  made  for  strengthening  the  bank  by  providing 
for  a  large  amount  of  surplus  capital.  Ample 
authority  is  given  the  Comptroller  to  insure  the 
fulfilment  of  all  these  conditions  in  regard  to 
capital  stock,  so  that  it  is  practically  impossible  to 
organize  a  national  bank  upon  fictitious  capital,  as 
was  sometimes  done  under  the  State  banking 
system. 

Directors.  —  The  shareholders  choose  a  board 
of  directors  ;  not  less  than  five  in  number,  each 
of  whom  must  be  a  citizen  of  the  United  States ; 
and  three  fourths  of  whom  must  be  citizens  of  the 
State  where  the  bank  is  located.  Each  director 
must  own  at  least  ten  shares  of  the  capital  stock 
of  the  bank.  To  all  these  things  he  must  make 
oath,  and  also  make  and  transmit  to  the  Comp- 
troller an  oath  that  he  will  faithfully  administer 
the  affairs  of  the  bank,  and  that  he  will  not 
knowingly  violate,  or  permit  to  be  violated,  any  of 
the  provisions  of  the  Banking  Act. 

The  directors  select  one  of  their  number  for 
president,  also  appoint  a  cashier  and  other  officers. 
All  the  affairs  of  the  bank  are  managed  by  the 
officers  subject  to  the  board  of  directors.  Hence 
the  reason  for  having  each  pecuniarily  interested 
by  owning  at  least  ten  shares  of  the  stock. 

They  are  required  to  be  citizens  of  the  United 


74  POLITICAL   ECONOMY, 

States  to  prevent  foreigners  from  controlling  our 
banking  system. 

Deposit  of  Bonds.  —  Each  bank  is  obliged  to 
deposit  with  the  Treasurer  at  Washington  a  cer- 
tain amount  of  interest-bearing  United  States 
bonds.  These  are  marked  as  the  property  of  the 
bank,  registered  in  the  books  of  the  Treasury 
department,  placed  in  the  Treasury,  and  exam- 
ined twice  a  year  by  an  agent  of  the  bank.  The 
Comptroller  sends  to  the  officers  of  the  bank 
ninety  per  cent  of  the  par  value  of  the  bonds,  in 
unsigned  bills.  The  bonds  are  the  property  of 
the  bank,  but  are  deposited  with  the  United 
States  as  security  for  the  redemption  of  the 
circulating  notes.  The  Treasurer  forwards  to  the 
bank  a  check  for  the  interest  when  due. 

If  the  bank  fails  to  redeem  its  notes,  the  govern- 
ment sells  the  bonds  and  redeems  them,  so  that 
no  loss  can  be  sustained  by  the  bill-holders.  If  a 
bank  fails  and  becomes  bankrupt,  its  circulating 
notes  are  perfectly  good,  because  they  will  be 
redeemed  by  the  United  States  government. 
Hence,  during  more  than  twenty  years,  since  the 
National  Banking  Act  was  passed,  not  one  dollar 
has  been  lost  by  bill-holders  on  account  of  the 
failure  of  a  national  bank.  But  under  the  old 
State  banking  system,  millions  were  lost,  by  bank 
notes  becoming  worthless  in  the  hands  of  the 
holders,  mostly  the  poorer  class  of  persons. 

Hence  it  will  be  readily  perceived  that  the  de- 


UNITED    STATES    NATIONAL    BANKS.  75 

posit  of  bonds  for  the  security  of  the  bill  hold- 
ers is  a  very  important  feature  of  the  Banking 
Act. 

But  it  has  been  asked  what  will  be  done  when 
the  debt  of  the  United  States  is  all  paid.  Then 
of  course  there  will  be  no  United  States  bonds  to 
deposit.  They  are  already  becoming  scarce,  and 
the  income  from  them  is  very  small  at  the  present 
market  value. 

In  answer  to  this  question,  it  may  be  said,  Let 
the  banks  deposit  other  securities,  ample  in  amount, 
and  satisfactory  to  the  Comptroller,  instead  of 
United  States  bonds.  Then  we  shall  have  a 
paper  currency  based  on  real  value. 

Legal  Tenders.  — Every  national  bank  is  required 
to  receive  at  par  the  notes  of  any  other  national 
bank  in  payment  of  debts.  They  are  receivable 
by  the  government  for  all  taxes  and  other  dues, 
except  duties  on  imports,  and  are  payable  by  the 
government  for  all  demands  except  interest  on  the 
public  debt. 

It  has  sometimes  been  asked  why  these  excep- 
tions should  be  made.  The  reasons  are  obvious. 
In  order  to  facilitate  the  sale  of  the  government 
bonds,  it  was  necessary  to  make  them  desirable  as 
an  investment  not  only  to  citizens  of  our  own 
country,  but  to  foreigners  as  well  ;  and  therefore 
the  interest  was  made  payable  in  a  currency  sta- 
ble in  value  and  good  in  any  country,  that  is,  in 
specie.     And  in  order  to  obtain  coin  for  the  pay- 


76  POLITICAL    ECONOMY, 

mcnt  of  interest  on  the  public  debt  and  of  the 
government  employes  in  foreign  countries,  it  was 
provided  that  the  duties  on  imports  should  be  col- 
lected in  specie. 

Redemption  of  Circulating  Notes.  —  i.  Every 
national  bank  must  redeem  its  notes  at  its  own 
counter  in  lawful  money,  at  par,  on  demand, 

2.  The  notes  of  all  closed  banks  must  be  re- 
deemed by  the  Treasurer  of  the  United  States, 

3.  All  worn,  mutilated,  or  defaced  notes  may  be 
forwarded  to  the  Treasury,  for  redemption,  by  an 
assistant  treasurer, 

4.  Bank  notes  in  sums  of  one  thousand  dollars, 
or  any  multiple  thereof,  will  be  redeemed  by  the 
Treasurer  whenever  presented. 

This  system  of  redemption  renders  the  circu- 
lating notes  of  the  national  banks  always  equal  in 
value  to  Treasury  notes.  It  also  serves  to  keep 
the  circulating  notes  whole  and  clean.  When 
there  is  no  suspension  of  specie  payments,  these 
bank  notes  will  be  at  par  with  coin,  and  will  be 
equally  valuable  in  any  part  of  the  nation. 

Destruction  of  Notes.  —  Notes  of  closed  banks, 
and  mutilated  notes,  redeemed  by  the  Treasurer, 
are  destroyed  in  presence  of  an  agent  of  the  Sec- 
retary, the  Treasurer,  the  Comptroller,  and  the 
bank.  And  their  destruction  is  certified  by  each 
of  these  four  men. 

Loans.  —  National  banks  are  prohibited  from 
loaning  money,  — 


UNITED   STATES   NATIONAL   BANKS.  7/ 

r.    On  real  estate  security, 

2.  On  security  of  their  own  capital  stock. 

3.  On  security  of  bank  or  treasury  notes. 

No  bank  is  allowed  to  loan  to  any  one  party  an 
amount  greater  than  one  tenth  of  its  capital  stock. 

Statements.  —  Detailed  statements  of  the  con- 
dition of  each  bank  must  be  made  to  the  Comp- 
troller at  least  five  times  a  year.  These  state- 
ments must  be  verified  by  the  oath  of  the  president 
or  cashier,  and  attested  by  three  of  the  board 
of  directors.  They  are  also  required  to  report 
to  the  Comptroller,  twice  a  year,  the  amount  of 
dividends  declared,  and  the  amount  of  profits  in 
excess  of  dividends.  Special  agents  of  the  Comp- 
troller examine  the  banks  when  thought  necessary. 

Taxes.  — The  national  banks  pay  to  the  United 
States  government  a  tax  of  one  per  cent  upon  the 
average  amount  of  their  circulating  notes,  and 
they  are  also  subject  to  local  taxation,  like  any 
other  corporation. 

National  Depositories. 

These  banks  are  also  employed  as  financial 
agents  of  the  United  States  government  where 
there  is  not  a  sub-treasury.  They  receive  and  pay 
out  money  for  the  government. 

Such  is  a  brief  explanation  of  the  national 
banking  system,  as  condensed  from  the  Report  of 
the  Comptroller  of  the  Currency. 

The  design  of  the  law  is  that  the  banks  shall 


78  POLITICAL   ECONOMY. 

be  safe,  strong,  conservative  associations ;  that 
they  shall  be  profitable  to  the  shareholders,  bene- 
ficial to  the  community  where  they  are  located, 
and  co-operate  with  the  government  whenever 
financial  aid  is  needed.  The  system  embodies  the 
condensed  experience  of  the  bankers  of  all  past 
ages ;  and  is  pronounced,  by  those  capable  of 
judging,  the  best  system  of  banking  which  the 
world  has  ever  known. 

It  is  certainly  to  be  hoped  that  this  nation  will 
never  return  to  the  old  State  banking  system,  with 
all  its  disadvantages,  defects,  risks,  and  losses. 


CHAPTER    XXII. 

TREASURY   NOTES. 

Besides  coin  and  bank  notes  there  are  now  in 
circulation,  in  the  United  States,  treasury  notes, 
which  are  commonly  called  by  the  people,  "  Green- 
backs," because  the  backs  of  the  notes  are  green. 
These  were  issued  during  the  civil  war  to  meet  a 
pressing  necessity.  When  the  banks  closed  their 
vaults,  and  were  unable  to  redeem  their  notes  in 
specie,  gold  and  silver  were  hoarded  and  exported. 
Coin  ceased  to  circulate  as  money,  and  was  bought 
and  sold  in  the  market.  The  first  effect  was  that 
small  coins  disappeared,  and  there  was  an  absolute 
necessity  for  some  kind  of  currency  to  represent 
parts  of  a  dollar. 


TREASURY   NOTES.  79 

To  supply  this  demand  the  government  issued 
fifty  millions  of  fractional  currency.  This  was 
paid  out  from  the  Treasury  to  meet  the  public 
expenses,  and  went  into  circulation  among  the 
people. 

But  the  wants  of  the  government  enormously 
increased.  An  army  had  to  be  raised,  armed, 
equipped,  clothed,  fed ;  a  navy  had  to  be  cre- 
ated, and  numerous  other  payments  had  to  be 
made.  For  these  purposes  there  was  need  of  more 
money.  Specie  ceased  to  be  a  circulating  medium, 
and  in  its  place  was  left  a  vacuum.  The  banks 
could  not  safely  supply  the  demand.  Hence,  from 
time  to  time,  the  government  issued  treasury  notes 
with  which  to  pay  the  enormous  expenses.  These 
notes  were  simply  promises  that  the  government 
would  pay  the  bearer  so  many  dollars,  —  not  at  a 
certain  time,  not^  on  demand,  — but  simply  that  it 
would  pay.  In  order  to  cause  these  notes  to  cir- 
culate freely,  they  were  made  legal  tenders  for  the 
payment  of  all  demands  both  public  and  private, 
except  interest  on  the  public  debt  and  duties  on 
imports. 

These  treasury  notes  were  issued  to  meet  a 
special  emergency,  and  ought  to  have  been  re- 
deemed and  destroyed  when  the  emergency  no 
longer  existed.  They  were  necessary  for  the  suc- 
cessful prosecution  of  the  war,  but  should  have 
been  gradually  withdrawn  from  circulation  when 
the   war  ended.     They  served  a  useful   purpose 


8o  POLITICAL  ECONOMY. 

during  the  dark  days  of  the  rebellion,  but  they 
should  have  disappeared  with  the  other  extraordi- 
nary circumstances  connected  with  it. 

After  peace  was  established,  a  law  was  enacted 
directing  the  Secretary  of  the  Treasury  to  redeem 
and  destroy  ;^4,ooo,ooo  of  these  treasury  notes 
every  month.  But  soon  there  was  a  clamor  from 
the  speculators,  and  the  destruction  was  sus- 
pended. This  rendered  the  return  to  specie  pay- 
ments vastly  more  difficult.  The  bank  notes  were 
all  redeemable  in  lawful  money  —  greenbacks  — 
and  the  greenbacks  were  payable  in  specie. 
Hence  the  whole  weight  of  resumption  rested 
upon  the  United  States  Treasury ;  therefore  it 
was  necessary  that  a  vast  amount  of  coin  should 
be  accumulated  in  the  vaults  of  the  Treasury 
before  resumption  could  be  safely  attempted. 
And  now  it  is  equally  necessary  to  keep  a  large 
balance  on  hand  continually,  in  order  to  prevent  a 
suspension  of  specie  payments  by  the  United 
States  Treasury.  This  would  be  a  national  dis- 
grace, as  well  as  a  public  calamity. 

While  we  export  more  commodities  than  we  im- 
port ;  while  the  balance  of  trade  is  in  our  favor ; 
while  specie  is  flowing  into  the  United  States,  — 
there  can  be  no  difficulty  in  maintaining  specie 
payments.  But  let  the  balance  of  trade  be  against 
us  ;  let  bankers  and  brokers  find  it  profitable  to 
export  coin,  —  and  there  will  be  a  demand  for  the 
redemption  of   the   outstanding  paper  currency. 


TREASURY   NOTES.  8 1 

There  will  be  none  too  much  reserve  to  meet  the 
emergency. 

There  is  now  in  circulation  about  ^350,000,000 
in  treasury  notes,  and  about  an  equal  amount  of 
national  bank  notes,  all  redeemable  by  the  United 
States,  and  there  must  be  many  millions  of  specie 
in  the  Treasury  when  payment  is  demanded. 

When  these  treasury  notes  are  redeemed  and 
destroyed,  this  immense  accumulation  of  coin  can 
be  used  for  the  payment  of  the  public  debt.  The 
management  of  the  government  finances  will  then 
become  vastly  more  easy.  It  will  be  necessary 
simply  to  levy  a  tax  sufficient  to  pay  the  fixed 
charges  and  the  current  expenses  of  the  govern- 
ment, and  pay  the  bills  when  they  become  due. 

There  will  be  no  fear  of  a  suspension  of  specie 
payment,  and  no  hoarding  of  coin  to  meet  such 
an  emergency. 

But  it  may  be  asked,  "Who  will  supply  the 
•deficiency  in  the  paper  currency  produced  by  the 
redemption  and  destruction  of  the  greenbacks } " 

The  answer  is  obvious :  the  demand  will  pro- 
duce a  supply.  Let  the  withdrawal  of  the  treas- 
ury notes  from  circulation  be  gradual,  and  there 
will  be  an  expansion  of  the  national  bank  circula- 
tion sufficient  to  meet  the  wants  of  the  people 
without  any  disturbance  of  our  financial  system. 
Let  the  banks  issue  all  the  paper  currency,  and 
let  every  paper  dollar  be  secured  by  the  deposit  of 
ample  security  in  the  United  States  Treasury,  then 


8l  POLITICAL   ECONOMY. 

we  shall  have  a  financial  system  which  will  be 
stable. 

But  it  is  sometimes  argued  that  the  government 
saves  paying  interest  on  these  treasury  notes  while 
they  are  circulating  as  money.  This  is  true ;  but 
such  an  advantage  will  not  compensate  for  the 
disadvantages,  the  risks,  and  the  perils  of  irre- 
deemable paper. 

It  will  be  remembered  that  these  treasury  notes 
are  issued  by  the  government  in  payment  for  sup- 
plies or  services.  They  are  merely  evidences  of 
debt,  secured  by  nothing  except  the  promise  of 
the  government  to  pay  the  bearer.  But  there  is 
no  legal  power  to  collect  a  debt  due  from  the 
United  States. 

Then,  also,  there  is  no  limit  to  the  amount  of 
treasury  notes  except  the  votes  of  politicians. 
The  amount  may  be  increased  or  diminished  with- 
out any  regard  to  the  financial  wants  of  the  coun- 
try, whenever  it  will  favor  the  dominant  party. 
If  money  can  be  manufactured  by  printing  pieces 
of  paper,  there  is  great  danger  of  an  over-issue, 
so  that  there  will  be  depreciation  of  value. 

Treasury  notes  are  sometimes  necessary  in  an 
emergency,  but  they  should  be  withdrawn  from 
circulation  as  soon  as  practicable  after  the  emer- 
gency is  passed. 


EXCHANGE.  83 

CHAPTER   XXIII. 

EXCHANGE. 

Except  in  case  of  primitive  barter,  there  can  be 
no  exchange  of  commodities  without  some  measure 
of  value  and  some  medium  of  exchange. 

The  nature  and  uses  of  three  classes  of  these 
mediums  have  already  been  explained,  namely  :  — 

1.  Specie^  or  coin^  which  is  the  prime  measure  of 
value,  and  is  recognized  as  a  medium  of  exchange 
throughout  the  civilized  world. 

2.  Bank  notes,  which  are  used  as  substitutes  for 
coins,  and  are  representatives  of  real  value. 

3.  Treasury  notes,  which  are  promises  of  the 
government  to  pay  the  bearer  real  value,  when 
presented  at  the  treasury. 

These  are  now  used  interchangeably  as  money  in 
the  United  States.  But  there  is  not  sufficient  cur- 
rency to  meet  the  demand  for  mediums  of  exchange 
for  the  vast  amount  of  daily  commercial  transac- 
tions. It  would  be  absolutely  impossible  to  trans- 
act the  business  of  a  single  day  if  the  money 
value  had  to  be  actually  passed  from  debtor  to 
creditor  in  every  case.  Hence,  other  methods 
have  been  employed,  other  mediums  of  exchange 
have  been  devised. 

Book  Accounts.  Men  frequently  need  merchan- 
dise when  they  have  neither  coin,  bank  notes,  nor 
treasury  notes.     In  such  cases   commodities  are 


84  POLITICAL   ECONOMY. 

obtained  on  verbal  promises  to  pay.  The  purchaser 
buys  the  goods,  the  creditor  makes  a  charge  in 
his  books,  and  the  money  or  some  other  com- 
modity is  paid  by  the  debtor  at  the  time  agreed. 

The  medium  of  exchange  in  this  case  is  the 
verbal  promise  of  the  debtor.  The  aggregate  of 
such  transactions  is  enormous.  It  is  a  convenient 
method  of  doing  business,  provided  that  the  credi- 
tor is  not  in  immediate  need  of  the  pay  for  his 
merchandise.  But  if  he  does  need  his  pay  before  it 
becomes  due,  the  account  is  not  in  proper  form  to 
sell  readily  to  a  third  party.  This  cause  produced 
its  legitimate  effect  centuries  ago,  and  led  to  the 
adoption  of 

Promissory  Notes  as  a  medium  of  exchange. 

If  a  man  wishes  to  purchase  commodities,  he 
may  write,  sign,  and  deliver  to  the  creditor  a 
promise  to  pay  to  him  or  his  order  a  specified 
sum  of  money,  at  a  stated  time,  or  on  demand, 
with  or  without  interest,  in  exchange  for  the  mer- 
chandise. This  note  then  becomes  the  medium 
of  exchange  just  as  really  as  so  many  dollars  in 
coin  or  bank  notes.  Such  a  note  has  a  legal, 
commercial  value.  It  is  negotiable.  It  can  be 
sold  in  the  market.  If  the  owner  wishes  to  make 
use  of  the  money  before  the  note  becomes  due, 
he  can  dispose  of  it  as  he  would  any  other  prop- 
erty. Hence,  writtett  promises  are  better  than 
verbal  as  mediums  of  exchange.  They  are  not 
money,  for  they  cannot  be  passed  at  their  face 


EXCHANGE.  85 

value.  They  are  not  a  legal  tender,  but  they  serve 
as  mediums  of  exchange.  Several  technical  terms 
are  used  in  respect  to  notes,  which  may  be  ex- 
plained here. 

The  maker  of  a  note  is  the  one  who  promises 
to  pay  the  amount  stated. 

The  payee  is  the  person  to  whom  the  money  is 
payable. 

The  holder  is  the  person  in  whose  possession  it 
is  legally  held. 

Checks.  Book  accounts  and  promissory  notes 
are  inconvenient.  Men  wish  to  receive  for  com- 
modities money  or  something  as  good  as  money. 
So  business  men  deposit  their  funds'in  some  con- 
venient bank,  and  when  they  wish  to  purchase 
merchandise  they  give  an  order  to  the  other  party 
to  obtain  his  pay  from  the  bank.  This  order  for 
the  payment  of  money  is  called  a  check. 

The  one  who  makes  and  signs  the  order  is  called 
the  drawer. 

The  one  who  is  directed  to  pay  the  money  is 
called  the  drawee. 

The  one  to  whom  it  is  made  payable  is  called 
the  payee.  If  the  payee  makes  the  order  payable 
to  another  by  writing  across  the  back,  he  is  called 
the  indorser.  The  new  payee  is  then  called  the 
indorsee. 

Certified  Checks.  Checks  of  individuals  are 
good,  provided  that  the  drawer  has  the  amount 
of  funds  in  the  bank.     But  the  bank  is  only  an 


86  POLITICAL   ECONOMY. 

agent,  and  will  simply  pay  out  the  money  of  the 
depositor.  Hence,  in  large  transactions,  most  men 
prefer  to  know  that  the  check  will  be  cashed  when 
presented.  This  is  done  in  a  very  simple  manner. 
The  check  is  drawn  like  any  other  check,  carried 
to  the  bank  and  stamped  "certified,"  with  the 
name  of  the  bank  and  the  date.  This  certification 
makes  the  bank  responsible  for  the  payment  of 
the  check  when  presented.  Certified  checks  are 
considered  preferable  to  uncertified  ones,  because 
the  bank  is  responsible  for  their  payment. 

Certificates  of  Deposit.  But  sometimes  a  man 
wishes  to  send  money  to  another  person  at  a  dis- 
tance when  he  has  no  funds  on  deposit  in  the 
bank.  In  that  case  he  cannot  draw  a  check  and 
send  it  away  to  pay  the  debt ;  and  he  may  not 
care  to  open  a  regular  bank  account.  Under  such 
circumstances  he  goes  to  the  bank,  deposits  his 
money,  and  receives  a  "certificate  of  deposit," 
stating  that  he  has  deposited  a  certain  amount  of 
money  in  the  bank,  payable,  when  presented,  to 
the  person  named.  The  bank  is  then  responsible 
for  the  payment. 

Cashier's  Drafts.  There  is  still  another  method. 
If  a  person  wishes  to  pay  a  debt  in  another  city, 
he  may  step  into  a  bank  and  buy  a  "cashier's 
draft,"  which  is  an  order  from  one  bank  direct- 
ing another  bank  to  pay  to  a  specified  individual 
the  amount  of  money  named.  These  cashier's 
drafts  are  negotiable  anywhere,  because  the  bank 


EXCHANGE.  87 

which  issued  them  is  responsible  for  their  pay- 
ment. Thus,  banks  furnish  facilities  for  balanc- 
ing the  accounts  between  different  localities. 

Drafts.  If  a  merchant  in  Boston  owes  a  thou- 
sand dollars  to  a  man  in  New  York,  and  another 
man  in  New  York  owes  the  merchant  in  Boston 
a  thousand  dollars,  and  both  amounts  are  due  the 
same  day,  the  merchant  in  Boston  writes  an  order 
addressed  to  his  debtor,  telling  him  to  pay  the 
thousand  dollars  to  his  creditor,  and  charge  the 
same  to  his  (the  Boston  man's)  account.  He 
sends  this  order  to  his  creditor,  who  collects  the 
money  from  the  debtor.  Thus  the  debts  are 
cancelled,  and  no  money  is  transported.  Such 
an  order  is  a  little  more  formal  than  a  check,  and 
is  called  a  draft.  But  it  has  the  same  nature  and 
use.  If  the  drawer  and  drawee  live  in  different 
countries,  the  order  is  still  more  formal,  and  is 
called  a  bill  of  exchange.  But  it  does  not  often 
happen  that  a  man  will  have  a  debtor  and  a 
creditor  for  the  same  amount  due  at  the  same 
time,  and  both  persons  living  in  another  place 
near  each  other.  Hence,  for  a  large  part  of  the 
exchanges,  other  methods  must  be  adopted. 

The  aggregate  annual  exchange  of  commodities 
between  two  great  neighboring  cities  is  sometimes 
enormous.  Hence  a  large  amount  of  indebtedness 
will  naturally  mature  in  each  city  every  day.  If 
the  debts  of  one  city  equal  those  of  the  other,  no 
currency  need  be  transported,  provided  that  some 


88  POLITICAL   ECONOMY. 

means  can  be  devised  for  cancelling  the  common 
indebtedness.  This  important  service  is  performed 
by  the  banks  located  in  the  two  cities. 

If  a  merchant  in  Boston  wishes  to  collect  a  debt, 
which  is  due  him  in  New  York,  he  draws  a  sight 
draft  on  the  debtor  for  the  amount.  A  bank  in 
Boston  takes  the  draft,  gives  the  merchant  credit 
for  it,  forwards  it  to  a  bank  in  New  York,  and 
debits  the  bank  for  the  amount.  The  New  York 
bank  collects  the  money,  and  credits  the  bank  in 
Boston. 

What  is  true  in  this  case  is  applicable  to  all  other 
Boston  creditors  of  parties  in  New  York.  Thus 
all  the  debts  due  in  Boston  from  individuals  in 
New  York  may  be  changed,  by  means  of  drafts, 
to  deposits  in  the  banks  of  Boston. 

In  the  same  manner  all  the  debts  due  from 
Boston  to  New  York  parties  may  be  changed  to 
deposits  in  the  banks  of  New  York.  If  the 
indebtedness  is  equal,  then  the  debits  will  just 
cancel  the  credits.  The  drafts  serve  as  mediums 
of  exchange  without  any  transfer  of  currency. 

But  if  Boston  buys  more  of,  than  it  sells  to.  New 
York,  then  the  balance  of  trade  will  be  in  favor  of 
New  York.  When  the  debts  mature,  Boston  will 
owe  New  York  more  than  New  York  will  owe 
Boston.  The  difference  must  be  paid  in  currency. 
Suppose  the  balance  of  trade  is  one  hundred  thou- 
sand dollars,  and  then  suppose  that  drafts  should 
be  drawn  in  each  of  the  cities  for  the  whole 


RENT.  8g 

amount  of  indebtedness,  then  there  would  be  one 
hundred  thousand  dollars  worth  more  of  drafts  in 
New  York  than  there  would  be  in  Boston.  In 
New  York,  therefore,  there  would  be  more  than 
enough  to  meet  the  demand,  and  they  would  be 
cheaper;  while  in  Boston  there  would  not  be 
enough,  and  they  would  be  worth  more  than  the 
face  value.  Thus  it  will  be  perceived  that  these 
various  forms  of  business  paper,  representing  the 
credit  of  individuals  or  corporations,  are  used 
extensively  as  mediums  of  exchange,  and  are  em- 
ployed by  means  of  the  banks  to  cancel  almost  an 
incredible  amount  of  debts  annually. 

Now  what  is  true  in  regard  to  the  case  supposed 
is  applicable  to  all  the  world.  The  unit  of  cur- 
rency is  always  the  measure  of  value ;  but  it  is 
seldom  the  medium  of  exchange  except  to  adjust 
the  balance  of  trade. 

Many  other  things  might  be  written  in  regard 
to  exchange,  but  the  above  is  thought  to  be  suffi- 
cient for  an  elementary  treatise. 


CHAPTER  XXIV. 

RENT. 

Much  has  been  written  in  regard  to  rent.  But 
it  is  not  the  province  of  an  elementary  treatise  to 
discuss  disputed  questions,  or  investigate  exploded 
theories. 


9©  POLITICAL   ECONOMY. 

Considering  the  views  of  Ricardo  as  substan- 
tially correct,  the  object  of  this  chapter  will  be  to 
make  the  subject  as  plain  and  simple  as  possible, 
regarding  Ricardo's  theory  as  the  basis  of  the 
explanation. 

Rent  is  the  compensation  paid  or  received  for  the 
use  of  real  estate. 

Rent  is  composed  of  three  elements. 

The  fii'st  is  for  the  use  of  the  betterments,  which 
have  been  produced  by  the  employment  of  labor. 
If  a  person  erects  buildings,  makes  fences,  clears 
the  forest,  ploughs  the  ground,  cultivates  the  soil, 
he  ought  to  receive  compensation  from  the  man  who 
enjoys  the  use  of  these  betterments.  This  is  an 
important  element  of  rent. 

The  second  is  that  which  results  from  the  differ- 
ence in  the  productive  power  of  the  soil. 

When  a  new  territory  is  discovered,  no  one  owns 
the  soil.  That  which  will  produce  most  with  the 
least  labor  is  first  occupied,  provided  that  all 
other  circumstances  are  equal.  As  long  as  there 
is  land  enough  of  the  first  quality  to  be  obtained 
without  cost,  no  rent  will  be  asked  or  paid,  except 
for  the  use  of  the  betterments  which  have  been 
made.  No  man  will  rent  land  while  he  can  ob- 
tain all  he  needs,  of  the  same  quality,  without 
price. 

But  when  all  the  land  of  the  first  quality  is 
preempted,  then  that  of  the  second  quality  must 
be  occupied.     This  second  quality,  not  being  so 


RENT.  91 

fertile,  will  produce  less  with  the  same  amount  of 
labor. 

The  second  element  of  rent  is  this  difference  of 
productiveness. 

It  has  been  explained  in  the  following  manner : 
If  an  acre  of  land,  of  the  first  quality,  produces 
ten  bushels  more  corn  annually  than  an  acre  of 
the  second  quality,  with  the  same  amount  of  labor, 
then  the  yearly  rent  of  the  first  acre  should  be  ten 
bushels  of  corn,  as  long  as  the  second  acre  can  be 
obtained  for  nothing. 

But  when  all  the  land  of  the  second  quality  ig 
preempted,  then  that  of  a  third  quality  must  be 
occupied.  A  certain  amount  of  rent  will  then  be 
demanded  for  the  second  quality,  and  a  higher 
rate  than  before  for  the  first. 

Thus  if  the  third  quality  produces  ten  bushels 
less  than  the  second,  then  the  rent  of  the  second 
will  be  teti  bushels  annually,  and  that  of  the  first, 
twenty  bushels. 

And  so  it  will  be  until  all  the  land  which  can  be 
obtained  for  nothing  is  taken.  As  the  population 
becomes  more  dense,  as  the  demand  for  home- 
steads becomes  more  imperative,  less  productive 
soil  will  be  occupied,  and  the  rent  of  the  better 
portions  will  be  correspondingly  increased. 

This  is  the  general  theory  of  rent,  as  produced 
by  a  difference  of  productiveness  of  the  soil. 
There  are  many  limitations  and  many  exceptions, 
which  need  not  be  explained. 


92  POLITICAL  ECONOMY. 

The  third  element  of  rent  is  that  which  is  caused 
by  a  difference  in  location.  Every  one  knows  that 
the  rent  of  real  estate  in  New  York  city  is  more 
than  the  rent  of  similar  property  in  a  country  vil- 
lage. This  may  be  illustrated  in  the  same  way  as 
the  second  element. 

While  every  tract  of  land  needed  is  equally  well 
situated,  there  can  be  no  rent  on  account  of  dif- 
ference of  location.  But  when  all  that  which  is 
most  favorably  located  is  preempted,  then  new 
settlers  must  be  content  with  less  desirable  places 
or  pay  rent  to  their  more  fortunate  neighbors. 
Thus  it  will  be  perceived  that  location  is  an  impor- 
tant element  in  the  rent  of  real  estate.  This  will 
explain  the  reason  for  the  rapid  advance  in  the 
price  of  real  estate  when  a  place  in  a  new  territory 
becomes  a  railroad  centre.  It  will  also  account 
for  the  wonderful  rise  in  value  of  land  in  our 
newly-settled  western  States.  The  frontier  line 
has  moved  so  rapidly,  and  civilization,  with  all  its 
conveniences  has  kept  so  near  to  it,  that  this  ele- 
ment of  location  has  produced  an  important  differ- 
ence in  the  value  of  land  in  a  short  time.  Land 
which  to-day  may  not  be  worth  a  dollar  because 
there  is  no  market  for  its  products,  in  a  single  year 
may  become  desirable  and  valuable  on  account  of 
a  railway  constructed  near  it. 

These  are  the  three  principal  elements  of  the 
rent  of  real  estate.  The  value  of  real  estate  de- 
pends upon  the  amount  of  income  to  be  derived 


INTEREST.  93 

from  the  rent.     In  other  words,  rent  is  the  mea- 
sure of  the  value  of  real  estate. 

Reverse  the  cause  of  the  increase,  and  there  will 
be  a  decrease  of  rent  and  value. 


CHAPTER   XXV. 

INTEREST. 

Interest  is  the  compensation  paid  by  the  bor- 
rower to  the  lender  for  the  use  of  money. 

During  the  dark  ages  the  practice  of  receiving 
interest  was  considered  immoral. 

Those  who  loaned  money  for  a  valuable  consid- 
eration were  persecuted  and  accounted  enemies  of 
mankind. 

The  early  statutes  of  Great  Britain  declared 
that  interest  was  illegal.  This  shows  the  igno- 
rance of  the  men  of  those  times  in  regard  to  the  first 
principles  of  political  economy.  Such  laws  strike 
at  the  very  foundation  of  public  prosperity.  The 
principal  incentive  to  industry  and  economy  is  the 
hope  of  obtaining  a  competency,  so  that  the  person 
may  retire  from  active  business  and  enjoy  the  fruits 
of  previous  labor.  Once  establish  the  principle 
that  no  man  shall  receive  interest  for  the  use  of 
money,  and  general  stagnation  of  business  will 
speedily  follow. 

A  person  should  receive  compensation  for  the 


94  POLITICAL   ECONOMY. 

use  of  money  for  the  same  reason  that  he  should 
for  the  use  of  any  other  commodity.  Money  is 
either  value  or  the  representative  of  value.  Hence 
it  may  be  exchanged  at  pleasure  for  any  other  kind 
of  property.  There  is  no  income  from  money  while 
it  remains  money  ;  but  he  who  borrows  it  expects 
to  exchange  it  for  productive  property. 

If  a  man  occupies  a  farm  belonging  to  another, 
he  expects  to  pay  for  the  use  of  it.  But  if  he  ob- 
tains money  from  a  third  party  and  purchases  the 
same  farm,  he  should  pay  for  the  use  of  the  money 
because  he  will  not  pay  rent  for  the  farm.  In  this 
case  the  money  which  he  borrows  represents  the 
value  of  the  farm  which  he  purchases.  He  avoids 
the  payment  of  rent  by  the  payment  of  interest. 
So  it  is  in  every  case.  The  borrower  exchanges 
his  loan  for  property  which  he  supposes  will  be 
profitable.  Hence  it  is  reasonable  and  right  that 
he  should  pay  for  the  use  of  the  money. 

Frequently  a  loan  is  a  benefit  to  both  parties. 
An  aged  person,  a  widow,  an  orphan  may  have 
property,  but  may  not  possess  the  ability  to  em- 
ploy it  profitably. 

In  the  vicinity  there  may  be  a  person  who  has 
health,  strength,  skill,  ability,  but  no  capital.  He 
hires  money  from  some  one  who  does  not  care  to 
use  it,  and  pays  a  just  compensation.  He  employs 
this  borrowed  capital  in  some  profitable  business, 
pays  the  interest,  and  has  a  margin  left  sufficient 
to  reward  him  for  his  labor  and  trouble.     In  such 


INTEREST.  95 

a  case  the  loan  is  a  benefit  to  the  borrower  and 
lender. 

The  foundation  of  many  a  fortune  has  been  es- 
tablished upon  borrowed  capital.  Thousands  of 
men,  women,  and  children  derive  their  means  of 
support  from  the  income  received  from  the  loan 
of  money. 

But  it  frequently  happens  that  lenders  and  bor- 
rowers may  not  live  in  the  same  vicinity.  In 
older  communities,  where  capital  has  been  long 
accumulating,  lenders  of  money  are  usually  more 
numerous  than  borrowers.  But  in  newly-settled 
places  the  number  of  borrowers  generally  ex- 
ceeds that  of  the  lenders.  Now  it  is  very  desir- 
able that  there  should  be  some  responsible  agency 
for  effecting  the  loan  of  these  surplus  funds.  This 
is  done  by  means  of  the  banks.  They  take  the 
capital  which  would  otherwise  remain  idle,  and 
lend  it  to  those  who  can  employ  it  profitably.  Thus 
it  will  be  perceived  that  the  banks  are  just  as  neces- 
sary in  bringing  together  borrowers  and  lenders 
as  merchants  are  in  effecting  exchanges  between 
manufacturers  and  consumers.  The  manufacturer 
does  not  care  to  leave  his  work  and  peddle  his  mer- 
chandise. He  disposes  of  his  goods  to  men  whose 
business  is  to  buy  and  sell.  These  merchants  are 
acquainted  with  the  manufacturers  and  consumers. 
They  know  the  state  of  the  market,  and  the  pros- 
pect for  the  future.  They  make  the  distribution 
of  merchandise  a  specialty,  and  consequently  they 


C/S  POLITICAL  ECONOMY. 

can   do  the  work   cheaper  and  better  than  the 
manufacturers. 

Now,  the  banks  occupy  the  same  position  in 
regard  to  the  borrower  and  lender  as  does  the 
merchant  in  respect  to  the  manufacturer  and  con- 
sumer. Both  are  indispensable  in  an  advanced 
stage  of  society. 


CHAPTER  XXVI. 

TAXATION. 

The  primary  object  of  government  is  the  pro- 
tection of  life  and  property.  For  this  purpose  laws 
must  be  enacted  and  enforced  ;  legislative,  execu- 
tive, and  judicial  departments  must  be  maintained; 
foreign  invasion  must  be  repelled ;  internal  anarchy 
must  be  prevented;  an  army  and  navy  must  be 
organized,  armed,  fed,  clothed,  paid.  These  are 
direct  and  essential  objects  to  be  accomplished  by 
government. 

But  besides  these  there  are  numerous  others 
which  have  an  indirect  influence  almost  as  impor- 
tant, such  as  the  carrying  of  the  mails,  the  im- 
provement of  rivers  and  harbors,  the  pensioning 
of  disabled  soldiers  and  sailors,  the  support  of  poor 
and  unfortunate  persons,  the  education  and  en- 
lightenment of  the  common  people.  These  and 
many  other  things  must  be  done  by  the  govern- 


TAXATION.  97 

ment,  in  order  that  it  may  effect  the  objects  for 
which  governments  are  estabhshed. 

But  these  things  cannot  be  done  without  ex- 
pense. Hence  there  must  be  some  means  of 
securing  a  revenue,  some  method  of  replenishing 
the  treasury.  No  form  of  government  can  be 
stable  without  a  permanent  income.  This  is  gen- 
erally obtained  by  some  system  of  taxation. 

Governments  exist  primarily  for  the  protection  of 
life  and  property,  and  the  expenses  ought  to  be 
borne  by  the  persons  and  property  protected. 

In  regard  to  the  truth  of  this  proposition,  there 
can  be  no  question.  But  as  to  means  and  meth- 
ods, difficulties  are  encountered  at  the  very  thres- 
hold of  the  subject. 

The  first  question  which  presents  itself  is  this  : 
What  proportion  of  the  expense  shall  be  paid  for 
the  protection  of  life,  and  what  for  the  security  of 
property }  Shall  the  ratio  be  according  to  the  rel- 
ative value  .-*  But  who  can  estimate  the  commer- 
cial value  of  human  life .?  Objects  must  have 
properties,  qualities,  or  attributes  in  common,  if 
there  is  to  be  any  proper  comparison.  And  what 
ntio  can  there  possibly  be  between  the  value  of 
life  and  property } 

The  question  also  arises,  whether  all  persons 
shall  be  taxed  alike,  or  whether  there  shall  be  dis- 
crimination ;  whether  women  and  children  shall  be 
exempt,  or  whether  there  shall  be  no  exception  in 
their  case  ? 


98  POLITICAL   ECONOMY. 

Theory,  as  usual,  fails  to  meet  such  difficulties. 
Logic  does  not  answer  such  questions.  The  expe- 
rience of  practical  men  alone  can  furnish  a  solution 
of  such  problems. 

The  conclusion  in  this  country  is,  that  rather  a 
small  portion  of  the  expense  for  maintaining  the 
government  should  be  equally  assessed  on  the  male 
members  of  the  community,  who  have  reached  a 
certain  age,  and  that  the  remainder  should  be 
paid  by  the  property  protected. 

Theory  would  seem  to  indicate  that  the  poll 
tax  should  bear  a  larger  proportion  of  the  whole 
amount  to  be  levied,  but  experience  is  a  better 
schoolmaster  than  theory,  especially  in  regard  to 
questions  of  political  economy. 

The  tax  for  the  protection  of  the  person  is  called 
poll  tax. 

As  to  the  collection  of  the  government  revenue 
from  property,  many  theories  have  been  advocated 
and  tried.  But  they  may  all  be  classed  under  two 
general  heads.  The  first  and  most  natural  method 
seems  to  be  that  of 

Direct  Taxation.  Direct  taxation  is  levied  di- 
rectly on  the  person  who  has  to  pay  it,  —  as  a  tax 
on  incomes,  on  houses,  on  furniture ;  and  if  not 
paid,  the  property  can  be  sold  to  pay  the  tax.  This 
method  would  seem  to  be  very  simple  and  easy. 
The  assessors  are  to  ascertain  the  amount  of  tax 
to  be  collected,  then  make  out  an  inventory  of 
tht  property  to  be  assessed,  and  then  let  every 


TAXATION.  99 

dollar  in  the  inventory  pay  its  proportion  of  the 
tax  to  be  levied.  Theoretically  there  can  be 
nothing  easier. 

But  even  here  are  difficulties.  The  question 
meets  us  at  the  very  beginning,  What  shall  be 
placed  in  the  inventory  for  taxation  ?  Shall  the 
levy  be  on  wealth  or  on  capital  ?  If  the  answer  is 
wealth,  then  shall  there  be  any  exemptions,  or 
shall  every  article  cf  commercial  value  be  taxed  ? 
Shall  pictures,  paintings,  statues,  books,  furniture, 
clothing,  jewelry,  be  placed  in  the  inventory  for 
taxation,  or  shall  the  people  be  encouraged  to  pro- 
cure those  things  which  tend  to  raise  them  to  a 
higher  state  of  civilization,  by  exempting  articles 
which  have  a  refining  and  elevating  influence  ? 

On  the  other  hand,  the  question  may  be  asked 
with  equal  propriety,  Shall  the  last  cow  of  a  poor 
widow,  the  house  not  yet  paid  for,  the  farm  which 
is  mortgaged  for  as  much  as  it  is  worth,  be  taxed, 
or  shall  they  be  exempt  ?  Such  are  some  of  the 
difficulties  if  we  make  wealth  the  basis  of  taxation. 

But  some  contend  that  capital  only  should  be 
taxed.  Then  the  question  immediately  arises, 
Shall  the  levy  be  on  productive  or  unproductive 
capital  ?  Theory  might  answer,  Let  the  produc- 
tive capital  pay  the  tax ;  let  the  unproductive  go 
free ;  let  there  be  a  tax  on  income. 

But  experience  has  demonstrated  that  this 
method  of  collecting  revenue  is  the  most  objec- 
tionable which  has  ever  been  tried  in  this  country. 


lOO  POLITICAL   ECONOMY. 

Thus  it  will  be  perceived  that  there  are  difficul- 
ties to  be  met  in  levying  even  a  direct  tax. 

The  result  is,  that  various  methods,  not  differing 
essentially,  have  been  adopted  in  different  locali- 
ties, to  meet  the  varied  circumstances.  The  rule 
seems  to  be,  that  all  property  protected  should  be 
placed  in  the  inventory  for  taxation,  unless  some 
good  reason  can  be  shown  for  exemption. 

In  other  words,  taxation  is  the  rule ;  exemption 
the  exception. 

Municipal  governments  are  generally  supported 
by  direct  taxation ;  national,  by  indirect. 

Indirect  taxation  is  a  duty  levied  on  articles  be- 
fore they  reach  the  consumer,  and  may  be  classed 
under  two  general  divisions  —  excise  tax  and  cus- 
toms duties. 

Excise  is  a  duty  levied  on  articles  produced  and 
consumed  in  the  country,  and  on  licenses  to  deal 
in  certain  commodities.  It  is  collected  from  the 
manufacturer  or  producer. 

Customs  duties  is  the  tax  levied  on  commodities 
imported  from  abroad,  and  is  collected  from  the 
importer. 

The  income  for  the  expenses  of  the  national 
government  are  derived  from  customs  duties  and 
internal  revenue. 

Internal  revenue  includes  both  excise  and  direct 
taxes. 

It  is  collected  from  citizens,  on  personal  incomes 
and  property^.on  legal  papers,  on  manufactured  ar- 


TAXATION.  lOI 

tides,  on  agricultural  products,  and  on  numerous 
luxuries  and  necessaries.  It  is  sometimes  obtained 
by  the  sale  of  stamps  to  be  attached  to  legal  docu- 
ments or  packages ;  sometimes  by  the  sale  of  li- 
censes for  persons  to  engage  in  certain  occupations, 
and  by  various  other  devices. 

But  these  methods  of  obtaining  a  revenue  have 
always  been  unpopular  in  this  country,  and  have 
seldom  been  resorted  to  in  time  of  peace. 

During  thecivil  war,  when  the  object  was  to  ob- 
tain as  large  a  revenue  as  possible,  in  order  to  meet 
the  enormous  expenses  of  the  army  and  navy, 
taxes  were  levied  wherever  they  could  be  collected. 
Luxuries  and  necessaries  alike  were  taxed,  regard- 
less of  the  theory  that  the  latter  should  be  exempt. 
But  since  the  close  of  the  war,  the  internal  taxes 
have  been  gradually  removed,  until  there  are  now 
only  a  few  articles  subject  to  the  internal  revenue 
tax.  The  greater  portion  is  collected  from  spirit, 
malt  liquors,  and  tobacco  in  its  various  forms. 

The  question  in  regard  to  securing  a  revenue 
from  taxation  on  imports  has  already  been  dis- 
cussed in  a  preceding  chapter. 


LIBRARY 

iWIVERSITY  OF  CALIFORNIA 

RIVERSIDE 


I02  POLITICAL  ECONOMY. 


CHAPTER   XXVII, 

PROFIT. 

Profit  is  pecuniary  gain  derived  from  any  oc- 
cupation or  business. 

Profit  should  be  distinguished  from  rent.  If  a 
man  owns  a  farm  and  does  not  care  to  cultivate  it, 
he  may  let  another  person  occupy  it,  and  charge 
a  certain  amount  for  its  use.  This  compensation 
is  called  rent.  But  if  the  owner  himself  occupies 
the  farm,  whatever  gain  he  may  derive  from  its 
cultivation  is  called  profit. 

Thus  money  received  from  another  for  the  use 
of  real  estate  is  called  rent.  Money  gained  by 
occupying  real  estate  is  called  profit. 

Profit  should  also  be  distinguished  from  interest. 
A  person  who  has  money  which  he  does  not  care  to 
use  in  any  business  enterprise  usually  loans  it  to 
some  one  who  can  employ  it  to  advantage,  and  he 
charges  a  certain  percentage  for  the  accommoda- 
tion. 

This  payment  from  the  borrower  to  the  lender  is 
called  interest.  ^But  if  a  man  employs  his  money 
in  trade  or  speculation,  the  gain  derived  from  using 
it  is  called  profit. 

Thus,  compensation  for  the  use  of  money  is 
styled  interest ;  gain  derived  from  using  money, 
profit. 


PROFIT.  103 

Profit  should  likewise  be  distinguished  from 
wages. 

A  person  who  works  for  another,  and  receives  a 
definite  payment  for  his  service,  is  called  a  laborer, 
and  the  compensation  which  he  receives  is  called 
wages,  A  person  who  engages  in  business  for 
himself,  and  depends  upon  his  gains  for  an  income, 
is  called  a  proprietor ;  and  his  net  gain  is  called 
profit. 

Thus,  money  received  for  laboring  for  another 
is  called  wages ;  money  received  for  laboring  for 
one's  self  is  called  profit. 

These  distinctions  are  plainly  marked,  and 
should  be  clearly  understood. 

A  distinction  should  also  be  made  between  gross 
profit  and  net  profit.  Gross  profit  is  total  gain 
before  expenses  and  losses  have  been  deducted. 
Net  profit  is  balance  of  gain  after  expenses  and 
losses  have  been  subtracted.  Frequently  there  is 
considerable  difference  between  these  two  amounts. 
Many  a  man  has  engaged  in  business  and  made 
large  gains  ;  but  after  paying  charges  for  tax,  rent, 
interest,  insurance,  labor,  etc.,  and  making  sufficient 
allowance  for  bad  debts,  he  has  found  his  net  profits 
less  than  nothing.  It  should  be  remembered  that 
the  expense  account  makes  an  important  difference 
between  gross  and  net  profits. 

There  is  also  a  distinction  between  profit  and 
dividend,  which  it  may  be  well  to  notice.  As 
society  advances,  many  important   improvements 


104  POLITICAL    ECONOMV. 

are  needed,  which  no  individual  is  willing  and 
able  to  undertake  alone  and  unaided.  Hence, 
men  unite  their  capital,  and  form  associations  for 
the  accomplishment  of  such  enterprises.  These 
are  commonly  called  companies  or  corporations. 
The  design  is  to  benefit  the  public,  and  to  secure 
a  reasonable  amount  of  profit  on  the  investment. 
The  stockholders  choose  a  board  of  officers,  who 
manage  the  business  and  periodically  divide  the 
whole  or  part  of  the  net  profits  among  the  share- 
holders. 

Thus  the  gains  of  a  corporation  are  properly 
called  profits,  but  that  portion  of  the  net  gain  peri- 
odically divided  among  the  owners  of  the  stock  is 
called  dividend,  to  distinguish  it  from  the  undivided 
surplus.  In  other  words,  gain  undivided,  on  the 
books  of  a  company,  is  called  profit ;  gain  divided, 
dividend. 

Amount  of  Profits. — There  are  numerous  cir- 
cumstances which  exert  an  important  influence 
in  determining  the  amount  of  profit  to  be  derived 
from  any  business  or  occupation.  If  a  man  en- 
gages in  farming,  he  does  not  expect  large  profits, 
nor  does  he  fear  heavy  losses.  He  chooses  a 
healthy  occupation  for  himself  and  family,  a  safe 
investment  for  his  capital,  and  is  content  with  a 
slow  but  sure  increase  of  wealth.  On  the  other 
hand,  if  he  engages  in  the  manufacture  of  explo- 
sives, or  embarks  in  some  speculative  scheme,  he 
anticipates  a  much  higher  rate  of  profit.    He  knows 


PROFIT.  105 

that  the  venture  is  extra  hazardous,  but  he  expects 
that  success  will  be  proportionally  advantageous. 
Experience  proves  his  theory  correct.  Risk  and 
danger  discourage  competition  in  hazardous  enter- 
prises, and  leave  for  those  who  engage  in  them  a 
wide  margin  for  gain.  Hence  we  have  the  general 
rule  that  profits  should  increase  in  proportion  to 
the  risk. 

The  rate  of  profit  depends  also  upon  the  amount 
of  sales.  A  retail  dealer,  who  sells  a  limited 
amount  of  merchandise  in  small  parcels,  cannot 
afford  to  accept  the  same  percentage  of  gain  as  the 
wholesale  merchant,  who  disposes  of  large  quan- 
tities in  the  original  packages.  Hence  —  other 
things  being  equal  —  the  rate  of  gain  decreases  as 
the  amount  of  sales  increases. 

The  ratio  of  profit  also  depends  upon  the  quick- 
ness of  sales.  The  trader  who  buys  a  barrel  of 
sugar  in  the  morning  and  sells  it,  at  a  profit,  before 
night  —  repeating  the  transaction  every  day  — 
makes  more  than  three  hundred  profits  in  a  single 
year.  Each  profit  may  be  small,  but  the  gain  is 
compounded  daily,  and  his  capital  increases  rapidly. 
A  net  gain  of  only  one  per  cent  on  each  sale  gives 
him  more  than  three  hundred  per  cent  annually. 

But  there  are  articles  seldom  called  for  by  pur- 
chasers. They  sometimes  remain  months,  or  even 
years,  on  the  shelves  of  dealers  before  they  are 
sold.  On  such  classes  of  goods  the  profits  com- 
pound at  long  intervals. 


I06  POLITICAL   ECONOMY. 

The  rate  of  profit  depends,  likewise,  upon  the 
sharpness  of  competition.  In  a  newly  settled  terri- 
tory, few  men  care  to  encounter  the  hardships,  the 
risks,  the  dangers  of  frontier  life  ;  consequently 
there  is  little  competition  and  a  good  opportunity 
for  gain. 

But  large  profits  always  attract  adventurers, 
hence  competition  increases  and  prices  diminish. 
This  process  generally  continues  till  the  expenses 
of  some  of  the  parties  become  greater  than  the  pro- 
fits. Then  failures  follow,  and  the  number  of  com- 
petitors is  reduced. 

Various  other  causes  are  continually  operating 
to  determine  the  net  profits  in  business  enter- 
prises, but  these  are  sufficient  for  our  purpose. 


CHAPTER   XXVIII. 

DISTRIBUTION    OF   PROFITS. 

If  a  person  owns  a  farm  and  performs  the  labor 
necessary  to  cultivate  it,  the  profits  belong  to  the 
owner. 

But  if  two  men  own  a  farm  jointly,  a  division  of 
the  gain  becomes  necessary.  This,  however,  is 
easy,  provided  that  each  performs  the  same  amount 
of  labor  and  owns  an  equal  share  of  the  property. 
The  division  in  this  case  is  perfectly  simple ;  the 
parties  share  alike  the  gains  and  losses. 


DISTRIBUTION    OF   PROFITS.  lO/ 

But  if  one  person  owns  land  and  another  culti- 
vates it,  the  question  of  division  becomes  more 
difficult.  The  basis  of  division,  of  course,  should 
be  the  amount  of  each  one's  investment.  But  one 
invests  real  estate,  the  other  personal  effort.  The 
one  is  dead  matter,  the  other  brain  and  muscle. 
The  elements  are  unlike,  and  there  can  be  no 
direct  comparison  between  them.  The  problem 
involves  a  factor  of  uncertainty  which  is  liable  to 
produce  trouble.  Thus  far,  the  only  practicable 
solution  is  to  compute,  as  nearly  as  possible,  the 
money-value  of  the  rent  of  the  real  estate  and  the 
value  of  the  labor,  and  then  divide  the  profits, 
using  these  as  a  basis  for  division.  This  method 
has  usually  proved  satisfactory  when  the  net  gain 
has  been  enough  to  pay  a  fair  rate  of  interest  on 
the  investment,  and  to  afford  wages  sufficient  to 
enable  the  laborer  to  maintain  his  family  comfor- 
tably. But  when  the  net  profits,  from  any  cause, 
become  greatly  reduced,  trouble  frequently  arises 
between  the  owner  and  the  worker,  even  when  the 
problem  is  so  simple. 

But  as  the  case  becomes  more  complicated,  the 
difficulties  rapidly  increase.  Let  us  take,  for  ex- 
ample, a  large  manufacturing  establishment.  In 
the  first  place,  the  government  collects  a  certain 
amount  of  tax,  which  must  be  paid  whether  there 
is  any  profit  or  not.  The  property  is  holden  for 
the  payment.  This  element  is  to  be  considered  in 
every  scheme  for  the  division  of  profits. 


I08  POLITICAL  ECONOMY. 

Now,  after  the  taxes  and  other  expenses  have 
been  paid,  the  owners  of  the  land  claim  enough  of 
the  profits  to  equal  the  current  rate  of  interest 
on  the  investment.  Those  who  construct  the 
building  expect  a  larger  percentage,  because  repairs 
will  be  frequently  needed,  and  the  building  itself 
will  finally  decay.  Other  persons  furnish  the  ma- 
chinery, and  demand  a  still  higher  rate  because  it  is 
of  such  a  nature  as  to  deteriorate  rapidly.  Others 
supply  the  quick  capital,  and  expect  more  than 
current  interest  on  their  money  because  the  risk 
is  greater  than  in  an  ordinary  investment.  Those 
who  perform  the  muscular  labor  must  receive 
enough  to  support  their  families  comfortably,  to 
educate  their  children  properly,  and  to  accumu- 
late something  for  their  maintenance  in  time  of 
adversity.  Those  who  supervise  the  work  must 
have  more  pay  than  the  common  laborer,  on  ac- 
count of  their  superior  skill  and  ability.  And  the 
general  manager,  who  furnishes  brain  and  energy 
sui^cient  to  unite  all  these  elements,  and  cause 
them  to  work  harmoniously  as  a  gain-producing 
agency,  must  have  a  salary  proi^ortional  to  his 
ability. 

Such  are  some  of  the  difficulties  of  the  problem 
for  the  distribution  of  the  profits  of  one  single 
manufacturing  establishment.  To  make  an  equi- 
table division  is  not  easy,  even  when  the  gain  is 
uniform  and  sufficient.  But  uniformity  is  not  a 
characteristic    of   the   business   world.      Unusual 


DISTRIBUTION    OF    PROFITS.  IO9 

commercial  activity  is  always  followed  by  a  certain 
degree  of  stagnation.  Large  profits  are  not  un- 
f reqiiently  followed  by  heavy  losses. 

Hence  any  scheme  for  the  equitable  distribution 
of  gains  must  contain  some  provision  for  the  satis- 
factory adjustment  of  losses.  Some  method  should 
be  devised  by  which  the  failure  of  capitalists  may 
be  avoided,  and  the  suffering  of  laborers  and  their 
families  may  be  prevented,  during  times  of  business 
depression. 

This  problem  has  proved  a  difficult  one,  even 
when  applied  to  a  single  case.  What,  then,  may 
be  expected  when  an  attempt  is  made  to  establish 
principles,  formulate  rules,  and  enact  laws  for  the 
adjustment  of  losses  and  gains,  which  shall  be 
equitable  and  satisfactory  to  all  parties,  in  all  cases 
and  under  all  circumstances.  This  is  the  problem, 
and  it  is  not  an  easy  one. 

It  might  be  supposed  that  the  experience  of 
European  nations,  during  so  many  ages,  would 
have  developed  some  satisfactory  method  of  distri- 
bution. But  their  experiments,  for  the  most  part, 
have  proved  failures,  and  their  successes  will 
scarcely  serve  as  precedents  for  us  on  account  of 
the  different  circumstances.  The  conditions  and 
relations  of  the  various  classes  of  society  in  this 
country  are,  in  many  respects,  different  from  those 
in  the  Old  World ;  the  rate  of  interest  is  usually 
lower ;  the  laborers  are  largely  of  a  different  class ; 
few  of  the  circumstances  affecting  the  adjustment 


no  POLITICAL   ECONOMY. 

of  gains  and  losses  are  similar.  Hence  the  prin- 
ciples upon  which  the  distribution  of  profits  has 
been  made  there  may  not  prove  to  be  applicable 
here. 

One  thing,  however,  is  certain,  —  that  time,  ex- 
perience, and  wisdom  ought  to  be  able  to  devise  a 
scheme  for  the  satisfactory  adjustment  of  the  diffi- 
culties between  laborers  and  employers. 


CHAPTER   XXIX. 

JOINT   LABOR   ASSOCIATIONS. 

Labor  and  capital  have  always  been  considered 
the  most  important  elements  of  Political  Economy. 
Capital  cannot  be  made  productive  without  labor, 
and  labor  cannot  find  employment  without  capital. 
They  are  necessarily  associated  in  every  business 
enterprise  ;  they  are  partners  and  joint  agents  in 
acquiring  gains,  therefore  they  should  share  the 
profits.  But  it  has  been  shown  that  a  perfectly 
just  and  equitable  distribution  of  earnings  or  profits 
is  a  difficult  problem.  Hence  controversies  have 
often  arisen  between  laborers  and  the  managers  of 
various  branches  of  business. 

To  remedy  these  difficulties,  numerous  forms  of 
joint  labor  associations  have  been  advocated  by 
certain  sanguine  reformers.  The  theory  is  that 
laborers  should  unite  and  form  associations,  choose 


JOINT  LABOR  ASSOCIATIONS.  Ill 

officers,  select  managers,  and  engage  in  various 
kinds  of  business  enterprises  —  such  as  building, 
manufacturing,  retailing,  wholesaling,  importing, 
exporting,  etc.,  —  and,  after  paying  the  expenses, 
divide  the  profits  among  the  members. 

But  it  may  be  asked,  what  is  the  difference 
between  a  labor  association  of  this  kind,  and  a 
common  company  or  corporation  ?  It  is  this : 
In  a  corporation,  salaries,  wages,  and  expenses 
are  paid,  and  then  the  net  gain  is  divided  among 
the  stockholders.  In  a  joint  labor  association,  ex- 
penses only  are  paid,  and  then  the  profits  are  dis- 
tributed among  the  members.  In  the  former  case, 
the  laborer  is  only  a  hired  worker ;  in  the  latter,  he 
becomes  a  partner.  He  has  a  voice  in  the  man- 
agement and  a  share  in  the  profits ;  and  it  is  claimed 
that  such  a  system  ought  to  produce  harmony 
between  labor  and  capital.  Certainly  the  theory 
seems  practical,  but  success  has  rarely  attended 
its  applFcation.  Failures  have  resulted  from  various 
causes,  but  the  chief  reason  seems  to  have  been 
the  want  of  suitable  persons  for  general  mana- 
gers. 

Men  whom  Nature  designed  for  leaders,  whom 
education  and  experience  have  fitted  for  superin- 
tendents of  important  enterprises,  are  not  content 
to  become  heads  of  labor  associations.  Such  per- 
sons can  command  high  salaries,  and  will  not  sub- 
mit to  a  division  of  the  profits  with  those  of  inferior 
ability.     Men  who  have  brain,  energy,  and  execu- 


112  POLITICAL  ECONOMY. 

tive  force  are  few,  and  are  seldom  found  among 
common  laborers.  They  can  choose  their  places 
and  name  their  salaries. 

But  men  of  inferior  capacity  frequently  overesti- 
mate their  powers,  and  are  willing  to  assume  re- 
sponsibilities for  which  they  are  not  fitted.  Hence 
weak  men  often  became  leaders  in  such  societies. 
This  has  been  one  of  the  most  common  causes  of 
their  want  of  success. 

Another  reason  is  that  the  income  of  each 
member  depends  upon  a  division  of  profits,  and 
not  upon  his  own  efforts.  It  may  be  said  that  this 
should  make  no  difference  ;  for  a  man  ought  to 
work  just  as  diligently  in  one  case  as  in  the  other. 
But  Political  Economy  does  not  treat  of  an  ideal 
world.  It  takes  men  and  things  as  it  finds  them, 
and  tries  to  make  them  better. 

It  is  a  fact  admitted  by  all,  that  men  will  not 
plan  so  carefully,  economize  so  rigidly,  and  work 
so  faithfully,  to  increase  the  income  of  an  <Gssocia- 
tion,  as  they  will  if  they  are  to  receive  the  whole 
profit.  Hence  gains  are  liable  to  be  less,  and  losses 
greater,  in  such  associations,  than  they  would  be  if 
affairs  were  managed  by  one  proprietor.  Commu- 
nity of  interest  always  weakens  individual  respon- 
sibility, and  is  often  the  source  of  failure. 

The  suspension  of  the  income  of  the  members  of 
these  joint  unions,  in  times  of  business  stagnation, 
has  been  another  cause  of  their  failure.  '  Usually 
shareholders  in  regular  companies  buy  stocks  with 


INCOME   FROM   CAPITAL.  II3 

surplus  earnings.  They  do  not  depend  on  dividends 
for  their  daily  bread.  Hence  they  do  not  suffer  for 
want  of  food  and  clothing  when  a  financial  crisis 
comes. 

But  men  who  unite  and  form  joint  labor  unions 
usually  invest  in  them  what  little  capital  they 
have,  and  spend  the  income  as  soon  as  received. 
This  is  all  very  well  as  long  as  gains  are  sufficient 
and  constant,  but  when  a  panic  comes,  when  losses 
are  to  be  adjusted,  when  dividends  cease,  then 
most  of  the  members  are  left  without  income.  But 
their  families  must  have  bread. 

The  result  is  that  the  majority  of  the  share- 
holders sell  their  interest  at  a  heavy  loss  to  men 
who  have  capital,  and  have  been  waiting  for  just 
such  an  opportunity,  which  they  knew  would  come 
sooner  or  later.  Thus  the  joint  union  dissolves  ; 
the  members  lose  the  greater  part  of  the  money 
invested,  and  are  content  to  return  to  the  old  sys- 
tem of  laboring  for  wages,  which  seems  to  be  the 
natural  method. 


CHAPTER   XXX. 

INCOME   FROM    CAPITAL. 

Capital  represents  surplus  wealth  secured  by 
previous  labor.  It  has  already  been  shown  that 
reasonable  compensation  should  be  paid  for  the 


114  POLITICAL   ECONOMY. 

use  of  capital.  Hence  the  managing  agent  of  any 
business  enterprise  should  be  able  to  pay  to  the 
owners  of  the  stock  such  a  share  of  the  net  gain 
as  will  be  equal  to  the  current  rate  of  interest.  If 
the  return  is  more  than  ordinary  interest,  competi- 
tion will  soon  reduce  it  to  the  common  level.  If 
it  is  less,  capital  will  seek  some  other  place  for 
investment.  The  man  who  risks  his  property  in  a 
legitimate  business  has  just  as  good  reason  to 
claim  compensation  as  the  laborer  has  to  expect 
wages. 

The  same  principle  holds  true  in  respect  to 
companies  and  corporations.  Stockholders  ought 
to  receive  an  equitable  share  of  the  net  earnings. 
But  dividends  should  be  computed  on  real  value, 
not  on  fictitious  capital.  Every  dollar  of  the  stock 
of  a  corporation  should  represent  a  dollar  actually 
paid  into  the  treasury.  This  was  the  original  idea 
of  a  corporation,  and  it  ought  not  to  have  been 
abandoned,  even  though  our  system  of  internal 
improvements  might  have  advanced  less  rapidly. 

But,  unfortunately,  new  methods  have  been 
adopted  which  time  and  experience  will  probably 
prove  to  be  erroneous,  and,  it  may  be,  even  dan- 
gerous. 

A  new  and  growing  community  invariably  ab- 
sorbs an  unusual  amount  of  capital.  This  has 
proved  specially  true  in  the  settlement  of  our  West- 
em  States  and  Territories.  Extensive  systems  of 
railways  seemed  to  be   needed  for   carrying   the 


INCOME   FROM   CAPITAL.  II5 

surplus  products  to  markets  on  the  seaboard.  But 
the  prospect  of  legitimate  dividends,  derived  from 
net  earnings  of  railways  in  new  settlements,  was 
not  sufficient  to  induce  capitalists  to  invest  their 
funds  in  such  enterprises.  Hence  a  scheme  was 
devised  by  which  credit  would  take  the  place  of 
capital,  and  a  high  rate  of  interest  could  be  sub- 
stituted for  dividends.  For  a  time  this  new  system 
was  very  popular. 

Under  this  arrangement,  a  few  shrewd  managers 
form  an  association,  obtain  a  charter,  secure  a 
donation  of  land  if  possible,  execute  a  mortgage 
on  the  franchise  and  prospective  property,  and 
issue  bonds  bearing  a  high  rate  of  interest  for 
enough  to  build  and  equip  the  road.  These  are 
placed  in  the  hands  of  trustees,  to  be  delivered  to 
the  managers  as  the  road  progresses.  The  bonds 
are  sold,  and  the  proceeds  used  for  construction 
and  equipment  purposes.  Thus  the  road  is  built 
by  means  of  funds  furnished  by  the  bondholders. 
The  capital  stock  is  retained  in  the  hands  of  the 
managers,  and  represents  no  real  value  actually 
paid  into  the  treasury.  In  this  case  the  bond- 
holders are  the  real  owners,  while  the  management 
is  entirely  under  the  control  of  the  stockholders. 
The  scheme  was  bad  in  theory,  and  has  proved 
worse  in  practice.  The  risk  is  all  with  the  bond- 
holders, who  advance  their  money  on  poor  security ; 
the  gain,  should  there  chance  to  be  any,  is  all  for 
the  managers.    But  capital  stock  which  represents 


Il6  POLITICAL   ECONOMY. 

no  real  value  should  bring  no  return.  Parties  who 
incur  no  risk  should  have  no  share  of  the  gain. 
The  bondholders  should  receive  the  amount  of 
interest  promised,  and  the  managers  proper  com- 
pensation for  their  services.  But  if  the  stockhold- 
ers obtain  a  share  of  the  net  earnings,  in  the  form 
of  dividends,  injustice  will  be  done  to  other  par- 
ties. In  such  case  the  schedule  of  charges  for 
transportation  must  be  too  high,  or  the  payments 
for  labor  too  low,  or  both  interests  may  suffer 
jointly.  Such  practices  are  too  common,  and  have 
served  to  produce  distrust  in  the  popular  mind. 
Many  corporations  are  now  paying  dividends  on 
capital  stock  which  does  not  represent  real  value. 
Hence  laborers  complain  that  they  do  not  receive 
a  fair  proportion  of  the  net  earnings,  while  patrons 
accuse  corporations  of  being  monopolies  and  charg- 
ing extortionate  prices.  Thus  there  is  increas- 
ing difficulty  between  companies  and  individuals. 
There  ought  to  be  some  effectual  remedy. 

The  above  is  only  one  method  of  placing  on  the 
market  stocks  which  have  no  real  value.  There 
are  numerous  other  devices  which  need  not  be  ex- 
plained. The  principle  is  the  same  for  all  cases, 
—  that  only  capital  stock  representing  value  should 
receive  dividends. 


INCOME  FROM  CAPITAL.  II7 

CHAPTER  XXXI. 

THE   BUSINESS    MANAGER. 

Political  economists  all  agree  that  there  are  two 
primary  elements  in  every  business  enterprise,  — 
capital  and  labor.  This  fact  no  one  pretends  to  dis- 
pute. But  it  is  now  quite  generally  admitted  that 
there  is  also  a  third  distinct  element,  —  the  man- 
agement. And  it  is  thought  by  some  that  much  of 
the  confusion  in  regard  to  the  labor  question  has 
resulted  from  not  recognizing  this  third  element. 

In  every  business  enterprise  there  must  be  capi- 
tal, and  there  must  be  labor ;  but  there  must  also 
be  a  head,  an  executive  with  sufficient  capacity  to 
unite  the  other  two  elements  and  cause  them  to 
work  harmoniously  and  profitably.  This  managing 
agent  should  so  utilize  capital  by  the  employment 
of  suitable  labor,  that  he  may  pay  reasonable  inter- 
est on  the  investment,  and  satisfactory  wages  to 
the  workmen,  —  reserving  sufficient  compensation 
for  management,  and  setting  apart  ample  surplus 
to  provide  for  probable  contingencies,  so  that 
wages  and  dividends  may  not  cease  when  a  finan- 
cial crisis  comes.  Such  are  some  of  the  results 
to  be  accomplished  by  a  business  manager,  but 
his  duties  cannot  be  readily  defined. 

J'he  failure  to  recognize  this  third  element  has 
probably  resulted  from  the  fact  that  the  manager 


Il8  POLITICAL  ECONOMY. 

has  frequently  furnished  the  capital,  and  sometimes 
performed  the  labor,  thus  uniting  two  or  even  three 
interests  in  one  person.  The  subject  can  probably 
be  best  understood  from  familiar  illustrations. 

If  a  man  hires  a  farm,  employs  men  to  cultivate 
it,  and  he  himself  manages  the  business,  the 
three  parties  are  distinct.  In  this  case  the  owner 
expects  his  rent,  and  the  laborers  demand  their 
wages,  whether  the  manager  gains  or  loses.  If 
there  is  net  loss,  he  suffers  it ;  if  net  gain,  he  ought 
to  receive  it.  The  risk  gives  the  manager  the 
title  to  the  profits. 

If  a  man  owns  a  farm  and  hires  men  to  cultivate 
it,  he  is  the  owner  and  manager  at  the  same  time. 
But  how  shall  he  divide  the  profits }  In  the  same 
manner  as  before,  only  he  should  receive  the 
shares  of  the  two  interests. 

But  if  a  person  hires  a  farm,  manages  it  himself, 
and  performs  all  the  manual  labor,  then  he  repre- 
sents both  the  manager  and  the  laborer.  In  this 
case  he  should  pay  rent  to  the  owner  of  the  real 
estate,  and  reserve  to  himself  the  share  of  the 
other  two  parties. 

Finally,  if  a  man  owns  a  farm,  manages  it  him- 
self, and  performs  all  the  labor,  then  he  represents 
the  three  parties  —  capitalist,  manager,  and  laborer. 
He  should  receive  interest  on  his  investment, 
wages  for  his  work,  and  the  remainder  of  the  profits 
for  his  management.  •. 

In  these   cases  the  manager  incurs  the  risk, 


WAGES.  1 19 

therefore  he   should    receive  the  gain,   after  all 
charges  are  paid. 

These  illustrations  apply  to  corporations.  Usu- 
ally the  managers  own  the  capital  stock.  The 
stockholders,  therefore,  representing  two  parties, 
should  receive  fair  interest  on  their  investment, 
and  the  net  gain,  after  paying  satisfactory  wages  to 
laborers. 


CHAPTER   XXXII. 

WAGES. 

Wages  may  be  defined,  according  to  Dr.  Web- 
ster, "A  compensation  given  to  a  hired  person  for 
his  or  her  services."  Sometimes  other  expressions 
are  employed  to  denote  payments  made  for  labor, 
but  these  are  all  comprehended  under  the  general 
term  —  wages.  Thus,  the  hackman  receives  fare  ; 
the  boatman,  freight ;  the  inventor,  royalty ;  the 
author,  copyright ;  the  president,  salary.  And  yet 
all  these  are  wages  received  for  personal  services. 

Like  every  other  exchangeable  commodity,  the 
price  of  labor  is  constantly  changing.  There  are 
numerous  circumstances  which  tend  to  establish 
the  price  of  labor  at  any  given  time  and  place. 

The  cost  of  living  has  an  important  influence. 
The  laborer  must  have  food,  clothing,  and  shelter 
for  himself  and  family.  These  are  the  prime  ne- 
cessaries of  life,  and  the  laborer  must  earn  enough 


I20  POLITICAL  ECONOMY. 

to  procure  them.  This  is  the  natural  minimum 
of  compensation.  If  the  scale  of  ordinary  wages 
becomes  permanently  less  than  this  standard,  the 
labor-system  will  finally  become  demoralized  ;  able- 
bodied  men  will  become  paupers,  and  the  working- 
classes  will  rebel  or  emigrate  to  more  favorable 
localities.  Ireland  has  long  been  an  example  of 
the  effect  of  paying  starvation  wages. 

But  the  cost  of  living  varies  greatly  in  different 
places.  In  some  of  the  eastern  countries  the  ex- 
pense of  maintaining  a  family  is  exceedingly  small, 
and  the  price  of  labor  is  correspondingly  low.  In 
the  United  States,  expenses  are  many  times 
greater,  and  wages  are  very  much  higher. 

The  cost  of  living  varies  also  at  different  times. 
Thus  in  California,  soon  after  gold  was  discovered, 
provisions  and  groceries  were  sold  for  almost  fabu- 
lous prices,  and  laborers  claimed  equally  exorbitant 
wages.  When  the  excitement  subsided,  prices  and 
wages  both  declined  to  reasonable  figures. 

The  cost  of  supporting  a  family  varies  also  ac- 
cording to  the  station  which  the  laborer  occupies. 
The  necessary  expenses  of  the  President  of  the 
United  States  are  vastly  more  than  those  of  an 
ordinary  private  citizen.  Hence  —  other  things 
being  equal  —  there  ought  to  be  a  marked  differ- 
ence between  their  receipts  for  services. 

Thus  it  might  be  shown  that  the  cost  of  living 
and  the  price  of  labor  have  always  exerted  an  im- 
portant  influence   upon   each   other.     There   has 


WAGES.  121 

never  been  a  marked  variation  in  the  former, 
without  a  corresponding  change  in  the  latter. 

Now,  some  have  argued  that  prices  of  necessa- 
ries control  wages.  Others  have  contended  that 
wages  regulate  prices.  But  it  is  not  proposed  to 
discuss  this  question.  It  may  be  well  to  remark, 
however,  that  a  rise  of  wages  mv2iri3h\y  follows 
an  increase  of  prices  —  never  precedes.  This 
would  seem  to  indicate  which  should  be  consid- 
ered the  cause,  and  which  the  effect. 

Again,  it  may  be  remarked  that  the  price  paid 
for  work  depends  greatly  upon  the  kind  of  ser- 
vice. The  man  who  carries  brick  and  mortar 
is  sometimes  envious  of  the  master-builder.  But 
it  should  be  considered  that  the  former  is  paid 
simply  for  elementary  labor ;  the  latter,  for  skilled 
labor.  The  services  are  different  in  kind,  and  the 
wages  should  be  as  the  quality,  not  quantity.  The 
common  laborer  could  not  do  the  work  of  the 
master-builder ;  hence  he  should  not  expect  like 
compensation. 

Higher  wages  are  also  paid  for  mental  than  for 
physical  labor.  The  physician,  the  lawyer,  the 
teacher,  the  clergyman,  receive  more  for  profes- 
sional services  than  does  the  uneducated  man  for 
manual  labor.  The  reason  is  obvious.  The  qual- 
ity of  the  service  is  not  the  same.  The  man  who 
has  spent  years  of  the  best  part  of  his  life,  and  a 
large  sum  of  money,  preparing  for  his  vocation, 
should  not  work  so  cheaply  as  the  common  laborer 


122  POLITICAL   ECONOMY. 

who  has  made  no  preparation.  Professional  train- 
ing has  sometimes  been  called  the  capital  stock  of 
the  educated  person. 

A  high  rate  of  wages  is  also  paid  for  executive 
ability.  The  private  soldier  sometimes  complains 
because  his  pay  is  so  small  compared  with  that  of 
the  commanding  general.  But  the  latter  is  paid 
for  his  military  skill,  his  intellectual  capacity,  his 
executive  ability.  Few  men  are  capable  of  com- 
manding a  great  army.  If  a  person  does  what  other 
men  cannot  do,  he  should  be  paid  accordingly. 
The  best  service  should  receive  the  highest  wages. 

The  price  of  labor  likewise  depends  upon  the 
value  of  the  currency.  It  makes  a  difference 
whether  a  man  receives  his  wages  in  gold,  or  in 
depreciated  paper.  During  our  civil  war,  gold  and 
silver  ceased  to  circulate  as  money,  and  treasury 
notes  became  legal  tenders  for  the  payment  of 
ordinary  debts.  The  result  was  that  paper  money 
rapidly  depreciated,  until  thirty-five  cents  in  gold 
would  buy  a  paper  dollar.  But  as  the  currency 
depreciated,  wages  increased.  When  the  war 
closed,  greenbacks  became  more  valuable,  and 
wages  became  less. 

But  it  is  questionable  whether  the  intrinsic  value 
received  for  labor  at  any  time  during  the  war  was 
really  as  great  as  it  is  to-day,  although  the  nominal 
amount  was  very  much  more.  So  it  has  always 
been.  Wages  increase  as  the  intrinsic  value  of 
the  currency  decreases,  and  vice  versa. 


WAGES.  123 

Demand  and  supply  also  have  an  influence  on 
wages.  When  there  are  more  laborers  than  there 
is  work,  wages  decrease.  When  there  is  more 
work  than  there  are  workers,  wages  increase. 
These  changes  result  from  competition. 

This  principle  explains  why  women  have  received 
less  pay  for  the  same  kind  of  service  than  men. 
There  have  been  comparatively  few  kinds  of  work 
which  women  have  been  considered  able  to  do. 
Consequently  there  have  been  more  women  seeking 
work  than  could  find  employment.  The  supply 
has  been  greater  than  the  demand.  Competition 
has  produced  the  natural  result  —  the  wages  of 
women  have  been  too  low.  The  remedy  is  to  cre- 
ate sufficient  demands  for  woman's  work.  Compe- 
tition will  then  be  less,  and  the  difficulty  will  be 
removed.  There  has  been  marked  improvement  in 
this  respect  during  the  last  few  years. 

But  the  most  important  element  in  determining 
the  price  of  labor  is  the  amount  of  net  gain.  High 
wages  may  be  paid  when  business  is  profitable. 
Wages  must  be  low  when  gains  are  small.  If 
there  is  no  net  profit,  wages  must  cease,  unless 
they  are  paid  from  the  capital  invested.  For  a 
short  time,  during  temporary  commercial  stagna- 
tion, laborers  may  be  paid  from  surplus  capital, 
derived  from  previous  earnings,  even  when  there 
are  no  net  profits.  But  the  general  principle  is, 
that  wages  must  be  paid  from  net  earnings.  Hence 
laborers  ought  to  be  interested  in  the  prosperity  of 


124  POLITICAL  ECONOMY. 

business  enterprises.  Home  consumption  should 
be  encouraged,  foreign  markets  should  be  sought, 
ruinous  competition  should  be  avoided,  confidence 
should  be  restored,  and  the  laborer  should  receive 
an  equitable  share  of  the  profits. 


CHAPTER   XXXni. 

LABOR   DIFFICULTIES. 

As  has  been  previously  stated,  many  impor- 
tant improvements  are  needed,  which  cannot  be 
secured  by  individual  enterprise.  The  risk  and 
expense  are  too  great  for  one  person  to  incur. 
Hence,  numerous  companies  have  been  formed  for 
various  purposes.  But  in  order  to  accomplish  the 
desired  objects,  these  associations  must  have  special 
powers  not  granted  to  individuals. 

For  example,  when  a  railway  is  to  be  constructed, 
the  company  must  have  the  right  to  build  it  across 
land  owned  by  private  parties,  by  paying  proper 
damages.  Other  privileges  must  also  be  secured, 
not  permitted  by  the  common  law.  Hence,  a  com- 
pany of  persons  form  an  association  and  secure 
from  the  law-making  authority  a  grant  to  exercise 
certain  special  powers  for  specific  purposes,  which 
are  presumed  to  be  for  the  public  good.  Such 
grants  are  called  charters.  In  some  States  they 
are  obtained   under  general  laws;  in  others  by 


LABOR   DIFFICULTIES.  12$ 

special  acts.     These  companies  have  been  very  use- 
ful in  developing  the  resources  of  the  United  Statea 

But  sometimes  complaint  is  made  that  corpora- 
tions exceed  their  granted  powers,  violate  their 
charters,  and  oppress  their  employees.  It  is  fre- 
quently asserted  that  the  distribution  of  profits  is 
not  equitable  —  that  wages  are  too  low  compared 
with  dividends.  Doubtless,  in  some  cases,  there 
are  reasons  for  complaint,  and  there  should  be 
some  means  for  legal  investigation  —  some  effec- 
tual remedy  for  labor  difficulties. 

The  State,  which  has  granted  to  corporations 
certain  special  privileges,  should  see  that  these  ex- 
traordinary powers  are  properly  exercised. 

There  should  be  in  every  State  a  labor  commis- 
sion, composed  of  men  of  character,  ability,  and 
experience,  to  which  all  questions  in  regard  to 
freight,  travel,  express,  and  labor,  arising  between 
corporations  and  individuals,  should  be  referred. 
This  commission  should  have  ample  powers  to  ex- 
amine books,  to  compel  testimony,  to  investigate 
complaints,  and  to  decide  all  disputes  between 
labor  and  the  managers  of  capital. 

There  should,  however,  be  the  right  of  appeal, 
in  certain  cases,  to  a  court  of  arbitration  having 
final  jurisdiction,  by  which  unjust  complaints  could 
be  investigated  and  silenced ;  and  valid  ones  could 
be  heard  and  remedied. 


QJJ  E  S  T  I  O  N  S. 


INTRODUCTION. 

What  is  political  economy  ? 
Of  what  does  it  treat  ? 
What  is  politics  ? 
Of  what  does  it  treat  ? 

What  is  the  difference  between  political   economy  and 
politics  ? 

What  is  intrinsic  value  ? 

What  is  commercial  value  ? 

Difference  between  intrinsic  and  commercial  value  of  air  ? 

Of  water  ? 

When  will  water  have  a  commercial  value  ? 

What  is  money  ? 

What  is  worth  ? 

What  is  cost  ? 

What  is  price  ? 

What  is  wealth  ? 

Why  should  not  air  and  sunlight  be  considered  wealth  ? 

What  is  labor  ? 

Wiiat  is  capital  ? 

What  is  quick  capital  ? 

What  is  permanflfct  capital  ? 

What  is  productive  capital  ? 

What  is  unproductive  capital  ? 

What  is  a  capitalist  ? 

136 


QUESTIONS.  127 

CHAPTER  I.  — Page  5. 

What  is  said  of  the  spontaneous  products  of  Nature  ? 

How  can  wealth  be  produced  ? 

What  will  overcome  man's  love  of  ease? 

What  will  induce  the  savage  to  labor  ? 

How  is  the  wealth  of  the  savage  obtained  ? 

Why  has  he  so  little  wealth  ? 

CHAPTER  n.  — Page  6. 

What  is  the  effect  of  moral  and  intellectual  improvement 
on  wealth  ? 

Hunger  teaches  what  ?    Famine  what  ? 

What  is  the  food  of  shepherd  tribes  ? 

What  are  the  requirements  of  shepherd  life  ? 

What  sustains  their  flocks  and  herds  ? 

Why  must  their  homes  be  temporary  ? 

What  serves  to  restrict  the  amount  of  wealth  of  shepherd 
tribes  ? 

CHAPTER  III.— Pages. 

What  is  said  of  a  nomadic  life  ? 

Result  when  food  or  water  fail  ? 

Effect  of  a  severe  winter.? 

Result  when  men  become  tired  of  a  shepherd  life  ? 

Why  do  men  cultivate  the  soil  ? 

Why  do  they  build  houses  and  barns  ? 

Why  do  shepherds  become  agriculturists  ? 

What  is  the  tendency  of  civilization  ? 

CHAPTER   IV.— Page  9. 

What  is  the  prime  element  of  wealth  ? 
How  does  the  savage  supply  his  wants  ? 
What  is  said  of  special  aptitudes  ? 
Result  of  a  man's  doing  a  little  of  everything  ? 


128  POLITICAL   ECONOMY. 

What  kind  of  work  should  each  one  do  ? 
What  causes  a  demand  for  more  rapid  production  ? 
Explain  what  is  meant  by  division  of  labor  ?     Illustrate  by 
the  shoe  business. 

Name  some  of  the  advantages  of  a  division  of  labor. 
What  will  determine  the  limit  of  the  division  of  labor? 

CHAPTER  v.  — Face  12. 

Wants  of  the  savage  ? 

Increase  of  wants  ? 

Substitutes  for  human  muscle  ? 

What  animals  have  been  used  for  motive  power  ? 

What  kinds  of  labor  have  been  performed  by  them  ? 

What  is  the  effect  on  the  production  of  wealth  ? 

What  are  the  objections  to  domestic  animals  ? 

What  was  next  used  as  a  motive  power  ? 

For  what  has  the  wind  been  employed  ? 

What  are  the  objections  to  its  use  ? 

What  was  next  employed  ? 

Why  is  water  better  than  wind  as  a  motive  power  ? 

Advantages  and  objections  ? 

What  is  said  of  steam  as  a  motive  power  ? 

What  has  been  accomplished  by  the  steam  engine  ? 

For  what  has  electricity  been  used  ? 

What  has  been  accomplished  bj'  it  ? 

What  may  be  "expected  in  the  future  ? 

CHAPTER  VI.  — Page  16. 

What  is  said  of  tools  and  implements  ? 

For  what  are  they  used  ? 

When  does  complicated  machinery  become  necessary  ? 
Examples. 

What  is  said  of  the  application  of  wind,  water,  steam,  and 
electricity  as  a  motive  power  ? 


QUESTIONS.  129 

CHAPTER  VII.  — Page  19. 

What  is  capital  ? 

Something  besides  labor  necessary  to  produce  wealth  ? 
What  is  the  capital  of  the  Indian  ? 
Capital  of  the  fisherman  ? 
What  are  payments  for  labor  ? 

Why  are  not  wealth  and  capital  synonymous  terms  ?    Illus- 
trate. 

CHAPTER  VIII.  — Page  20. 
What  is  the  natural  tendency  of  capital  ? 
What  effect  have  mountains,  lakes,  rivers,  and  the  ocean 
on  the  increase  of  capital  ? 

What  influence  has  the  nature  of  the  soil  on  capital  ? 

Influence  of  climate  ? 

Character  of  the  inhabitants  ? 

Nature  of  the  government  ? 

Why  is  capital  a  political  barometer  ? 

CHAPTER  IX.  — Page  24. 

What  is  trade  ? 
What  is  direct  trade  ? 
Give  an  example  of  barter. 
Wiiat  is  the  second  stage  of  trade  ? 
What  is  the  reason  for  the  demand  for  traders  ? 
What  are  exports  ? 
What  are  imports  ? 
Who  are  exporters  ? 
Who  are  importers  ? 
What  are  duties  ? 
What  is  a  tariff? 

What  is  the  difference  between  specific  and  ad  valorem 
duties  ? 

When  do  luxuries  become  necessaries  ? 

What  is  said  in  regard  to  restrictions  on  trade  ? 


130  POLITICAL   ECONOMY. 

CHAPTER  X.  — Page  28.     , 

What  is  the  theory  of  free  trade  ? 

What  is  the  argument  from  the  Bible  ? 

What  is  the  answer  ? 

Why  should  the  owner  of  stalls  in  a  market  receive  pay 
for  their  use  ? 

Why  should  a  nation  receive  pay  for  the  use  of  its  markets  ? 

What  is  said  of  the  moral  right  to  levy  a  duty  on  imports  ? 

What  then  does  the  question  become  ? 

What  effect  has  the  collection  of  duties  on  other  forms  of 
taxation  ? 

What  is  said  of  direct  taxation  ? 

What  answer  has  been  given  ? 

What  kinds  of  articles  have  usually  been  taxed? 

What  is  the  argument  from  benevolence  ? 

What  should  be  the  answer  ? 

What  is  said  of  charity  ? 

CHAPTER  XL  — Page  32. 

Why  are  governments  necessary  ? 
Why  is  taxation  of  some  kind  essential  ? 
What  is  the  theory  of  taxation  for  revenue  ? 
What  are  the  principal  objections  ? 
What  is  said  of  taxing  alcohol  and  tobacco  ? 
Can  an  evil  be  remedied  by  taxation  ? 
How  can  evils  be  prevented  ? 

What  will  be  the  effect  of  levying  a  high  duty  on  luxu- 
ries ? 

What  is  said  of  the  application  of  this  theory  ? 

CHAPTER  XII.  — Page  34, 

What  is  the  theory  of  the  protectionist  ? 

How  does  a  duty  on  imports  protect  home  industry  ? 


QUESTIONS.  1 3 1 

What  will  be  the  effect  of  free  competition  ? 

What  would  be  the  effect  if  cotton  cloth  were  placed  on 
the  free  list  ? 

What,  when  there  is  a  high  duty  ? 

How  does  a  high  tariff  benefit  the  manufacturer  ?  The 
mechanic  ?     The  farmer  ? 

What  is  said  of  conflicting  interests? 

What  are  the  difficulties  in  regard  to  duties  on  iron? 
Lumber  ?     Sugar  ? 

Does  "  protection  protect  ?  " 

What  are  the  final  results  of  a  protective  tariff? 


CHAPTER  XIIL  — Page  39. 

What  are  some  of  the  theories  which  have  been  advocated  ? 
They  are  modifications  of  what  ? 

What  is  said  of  the  need  of  protection  in  a  newly  settled 
territory  ? 

What  in  older  communities  ? 
When  should  artificial  barriers  be  removed  ? 
When  may  absolute  free  trade  be  the  true  policy  ? 
What  should  decide  questions  of  revenue  ? 
When  should  changes  be  made  ? 

chapter'  XIV.  — Page  42. 

When  is  there  no  need  of  money  ? 
When  is  there  need  of  money  ? 
What  is  money  ? 

What  is  the  measure  of  distance,  surface,  capacity,  weight  ? 
What  substances  have  been  used  for  money  ? 
What  property  must  a  measure  of  value  possess  ? 
What  are   four  essential   qualities  which   money  should 
possess  ? 

Are  there  any  others  ? 


132  POLITICAL  ECONOMY. 

Objections  to  the  substances  previously  mentioned  ? 
Wliy  have  gold  and  silver  been  used  ? 
How  was  the  value  of  money  ascertained  ? 
What  are  the  objections  to  weighing  out  money? 

CHAPTER  XV.  — Page  45. 

When  were  coins  first  used  ? 
When  did  the  Lydians  coin  gold? 
Who  were  the  Lydians  ? 

When  did  the  Romans  coin  silver?     When  gold ? 
What  metals  are  now  used  for  money  ? 
What  are  coins  ? 

Can  the  value  of  metal  be  changed  by  stamping  ? 
What  would  be  the  effect  of  calling  half-dollars,  dollars  ? 
Why  did  kings  debase  the  coins  ? 

What  were  the  effects  of  debasing  the  coins  of  the  realm? 
What  would  be  the  effect  of  shortening   the   yard-stick? 
Of  lengthening  it  ? 

What  nations  have  tampered  with  the  coinage  ? 
What  results  have  followed  ? 

CHAPTER  XVI.  — Page  48. 

Should  the  unit  of  value  be  made  of  gold  or  silver  ? 

Arguments  in  favor  of  silver  as  a  standard  ? 
•   Objections  ? 

Why  should  gold  be  the  standard  ? 

Arguments  in  favor  of  both  gold  and  silver? 

Objections  to  a  double  standard? 

What  was  the  effect  of  the  discovery  of  gold  in  California 
and  Australia  ? 

Of  the  discovery  of  silver  in  Nevada  ? 

What  is  said  of  an  adjustment  of  the  ratio,  when  there  is  a 
double  standard? 

What  is  the  weight  of  the  gold  eagle  ? 


QUESTIONS.  133 

Weight  of  the  silver  dollar  ? 

What  change  is  now  necessary  ? 

What  is  seigniorage  ? 

Why  should  there  be  a  charge  for  coining  money? 

Effect  of  free  coinage? 

What  is  supposed  to  be  the  true  theory  ? 

CHAPTER  XVI  I.  — Page  52. 

What  is  a  bank  ? 

What  is  a  bank  of  depo'sit?  Discount?  Exchange? 
Issue  ? 

Describe  the  banking  system  of  Greece  and  Rome. 

When  was  banking  revived? 

When  and  why  was  the  Bank  of  Venice  established?  Of 
Barcelona  ?    Of  Genoa  ?    Of  Amsterdam  ? 

How  were  payments  made  through  these  banks? 

Explain  how  bills  of  exchange  originated. 

Wliat  is  said  of  loaning  deposits? 

When  was  the  Bank  of  England  organized  ? 

Why  was  it  established  ? 

Its  original  capital  ? 

How  does  the  bank  regulate  the  circulation  of  specie? 

Is  such  a  bank  needed  in  the  United  States  ? 

When  will  New  York  become  the  financial  centre  ? 

CHAPTER  XVIII.  — Page  56. 
Describe  the  Bank  of  North  America. 
Give  a  history  of  the  first  Bank  of  the  United  States. 
When  did  its  charter  expire  ? 

What  will  be  the  future  decision  in  regard  to  this  bank  ? 
When  and  why  was  the  second  Bank  of  the  United  States 
organized  ? 

When  did  its  charter  expire? 
How  was  it  managed  ? 
What  was  the  result  ? 


134  POLITICAL  ECONOMY. 

CHAPTER  XIX.  — Page  60. 

What  is  said  of  the  charter  of  State  banks  ? 

When  was  the  first  one  chartered  ? 

What  were  the  objections  to  State  banks?  Failures? 
Losses  ?     Panics  ? 

When  and  where  were  the  State  bank  notes  redeemed  ? 

What  was  the  limit  of  the  circulation? 

What  were  the  results  ? 

What  were  the  causes  of  financial  difficulties  under  the  old 
system  ? 

What  was  the  effect  of  the  civil  war  on  the  banking  system  ? 

Why  was  there  a  suspension  of  specie  payment  ? 

How  was  the  State  bank  system  changed  to  a  national 
system  ? 

How  could  taxation  prevent  the  State  banks  from  issuing 
circulating  notes  ? 

Why  was  there  no  objection  to  the  change  ? 

What  would  be  the  effect  of  the  repeal  of  the  law  by  which 
the  circulation  of  State  banks  is  taxed  ? 

Which  is  the  better  system  ?     Why  ? 

CHAPTER  XX.  —  Page  66. 

What  is  the  most  important  use  of  banks  ? 

What  is  the  average  amount  of  daily  deposits  ? 

What  proportion  of  the  deposits  may  be  safely  loaned  ? 

Do  national  banks  pay  interest  on  deposits  ? 

What  are  savings  banks  ? 

Why  were  they  organized  ? 

When  were  they  established  ? 

By  what  authority  are  they  organized  in  the  United  States  ? 

What  is  said  of  their  deposits,  loans,  dividends,  manage- 
ment, usefulness? 

Should  there  be  government  savings  banks  connected  with 
post-offices  ? 

Reasons  ?    Objections  ? 


QUESTIONS.  135 

CHAPTER  XXI,  — Page  70. 

What  are  the  principal  corporate  powers  of  the  national 
banks  ? 

How  may  they  be  organized  ? 

What  is  free  banking? 

Who  may  become  stockholders  ? 

What  is  the  legal  amount  of  capital  stock  ? 

When  must  it  be  paid  in  ? 

How  many  dollars  constitute  a  share  ? 

What  are  the  liabilities  of  shareholders  ? 

What  is  said  of  surplus  capital  ? 

For  what  can  it  be  used  ? 

What  are  the  qualifications  for  directors? 

Duties  of  directors  ?    Residence  ? 

Bonds  to  be  deposited  ? 

Why  are  the  bill-holders  secure  ? 

What  will  be  the  eflect  when  the  bonds  are  all  paid? 

For  what  are  the  bank  notes  legal  tenders  ? 

Exceptions,  and  why  ? 

Where  are  the  notes  redeemable  ? 

Why  are  they  redeemed  ? 

When  and  by  whom  destroyed  ? 

On  what  kinds  of  security  are  national  banks  prohibited 
from  loaning  money  ? 

What  statements  are  they  required  to  make  ? 

When  do  the  banks  serve  as  national  depositories  ? 

What  is  said  of  the  system  ? 

CHAPTER  XXII.  — Page  78. 

What  are  treasury  notes  ? 

Why  were  they  issued  ? 

For  what  were  they  legal  tenders  ? 

What  should  have  been  done  with  them  ? 

Why  are  they  the  source  of  financial  danger  ? 


136  POLITICAL   ECONOMY. 

What  is  meant  by  the  "  balance  of  trade  ? " 

What  will  be  the  effect  when  the  balance  of  trade  is  unfa- 
vorable to  us? 

If  the  "greenbacks  "  should  be  destroyed,  what  would  take 
their  places  ? 

How  does  the  government  save  paying  interest  by  issuing 
treasury  notes  ? 

What  value  do  "  greenbacks  "  represent  ? 

What  is  the  limit  of  their  issue  ? 

When  are  they  necessary  ? 

CHAPTER  XXIII.  — Page  83. 

What  besides  specie  are  used  for  money  ? 

Can  the  exchanges  be  made  with  these  alone  .'* 

What  are  book  accounts  ? 

What  are  the  objections  to  them  ? 

Why  are  notes  better  than  accounts  ? 

Who  is  the  maker  of  a  note  ?     Payer  ."*     Holder  ? 

What  is  a  check  ? 

What  are  certified  checks  ? 

What  is  the  difference  between  a  common  check  and  a 
certified  check  ? 

What  are  certificates  of  deposit? 

Why  are  they  convenient  ? 

What  is  the  difference  between  a  certified  check  and  a 
certificate  of  deposit  ? 

What  is  a  cashier's  draft  ? 

What  is  an  ordinary  draft  ? 

What  is  the  difference  between  the  two  ? 

How  do  drafts  serve  as  mediums  of  exchange? 

What  is  the  office  of  the  banks  in  such  cases  ? 

For  what  purpose  is  currency  used  in  exchange  ? 


QUESTIONS.  137 

CHAPTER  XXIV.  — Page  89. 
What  is  rent? 

What  is  the  first  element  of  rent? 
What  is  the  second  ?     The  third  ? 
Illustrate  each  of  these  by  examples. 
What  will  cause  a  decrease  of  rent  ? 

CHAPTER  XXV.  — Page  93. 

What  is  interest  ? 

When,  where,  and  why  was  interest  formerly  considered 
illegal  ? 

The  effect  of  such  laws  ? 

What  is  the  principal  incentive  to  labor  and  to  accumulate 
property  ? 

Why  should  the  lender  of  money  receive  compensation  ? 
Illustrate. 

Show  how  a  loan  may  benefit  both  the  borrower  and  the 
lender. 

How  do  the  banks  serve  as  loan  agents? 

How  do  banks  compare  with  agents  ? 

CHAPTER  XXVI.  — Page  96. 

What  is  the  primary  object  of  government  ? 

Mention  some  essential  objects  to  be  accomplished  by 
government. 

What  others  have  an  indirect  influence  in  protecting  life 
and  property  ? 

How  are  the  expenses  for  accomplishing  these  objects  to 
be  secured  ? 

How  should  the  taxes  be  assessed  ? 

What  proportion  shall  be  assessed  on  the  person  and  what 
on  property  ? 

Shall  all  persons  be  taxed  alike  ? 


138  POLITICAL  ECONOMY. 

Shall  there  be  any  exceptions  ? 

What  is  a  poll  tax  ? 

What  is  a  property  tax  ? 

What  is  direct  taxation  ? 

Shall  wealth  or  capital  be  taxed  ? 

Shall  there  be  exemptions  of  property? 

What  is  said  of  an  income  tax  ? 

What  is  the  rule  for  taxation  ? 

What  is  indirect  taxation  ? 

What  is  excise  ? 

What  are  customs  duties  ? 

What  is  internal  revenue  ? 

What  is  said  of  taxation  during  the  civil  war  ? 

CHAPTER  XXVII.  — Page  102. 

What  is  profit  ? 

How  shall  profit  be  distinguished  from  rent  ? 

How  from  interest  ?     From  wages  ? 

What  is  the  distinction  between  gross  and  net  profits  ? 

Difference  between  profit  and  dividend  ? 

Amount  of  profits  in  farming  ? 

In  speculative  schemes  ? 

How  does  the  amount  of  sales  affect  the  profits  ? 

The  quickness  of  sales  ? 

The  sharpness  of  competition  ? 

CHAPTER  XXVIIL  — Page  106. 

When  will  there  be  no  division  of  profits  ? 

When  and  how  will  the  profit  be  divided  between  two  ? 
Between  three  ? 

How  should  the  profits  of  a  manufacturing  establishment 
be  divided  ? 

What  is  said  about  losses  ? 


QUESTIONS.  139 

What  is  said  about  establishing  rules  for  the  distribution 
of  profits  applicable  to  all  cases  ? 

What  has  been  the  experience  of  European  nations  ? 


CHAPTER  XXIX.  — Page  mo. 

What  is  said  of  labor  and  capital  ? 

Why  have  labor  controversies  arisen  ? 

What  remedies  have  been  advocated  ? 

What  is  the  difference  between  labor  associations  and 
corporations  ? 

What  are  the  three  reasons  given  for  the  failure  of  joint 
labor  associations  ? 

What  has  been  the  final  result  in  most  cases  ? 

CHAPTER  XXX.  — Page  113. 

What  does  capital  represent  ? 

Why  should  compensation  be  received  for  its  use  ? 

How  does  this  principle  apply  to  corporations  ? 

What  should  nominal  capital  represent? 

Explain  the  new  method. 

What  are  the  objections  to  the  new  method? 

CHAPTER  XXXI.  — Page  117. 

How  many  primary  elements  in  every  business  transaction  ? 
What  are  the  duties  of  a  business  manager  ? 
Why  have  men  failed  to  recognize  the  third  element  ? 
What  is   the   illustration   when  the  three  elements    are 
distinct  ? 

When  two  are  united  ? 

When  the  three  are  united  ? 

How  do  these  illustrations  apply  to  corporations  ? 


I40  POLITICAL   ECONOMY. 

CHAPTER  XXXI I.  — Page  119. 

Define  wages. 

What  other  terms  are  used  ? 
Why  does  the  cost  of  living  affect  wages  ? 
What  is  the  natural  minimum  of  wages  ? 
What  effect  have  time,  place,  and  other  circumstances  on 
wages  ? 

What  kind  of  labor  commands  the  highest  pay  ?     Why  ? 
What  is  said  of  the  private  soldier  and  the  general  ? 
What  effect  has  a  change  in  the  value  of  the  currency  on 


wages 


Wages  during  the  civil  war  ? 

What  is  the  effect  of  demand  and  supply  on  wages? 
What  is  said  of  the  wages  of  wQjnen  ? 
What  is  the  most  important  element  in  determining  the 
price  of  labor  ? 

From  what  must  wages  be  paid  ? 

What  will  tend  to  increase  the  price  of  labor  ? 

CHAPTER  XXXIII.  — Page  124. 

Why  cannot  all  enterprises  be  accomplished  by  private 
parties  ? 

Why  are  companies  formed  ? 

Why  must  corporations  have  special  powers  and  privileges  ? 

What  should  be  done  if  they  violate  their  charters  and 
exceed  their  granted  powers  ? 

What  is  said  of  a  labor  commission  ? 

What  of  a  court  of  arbitration  ? 


INDEX. 


Page 

Accounts 83 

Air,  value  of 2,  3 

not  wealth 3 

Animals  as  a  motive  power  .     .  13 

Arbitration,  court  of     ....  125 

Banks  of  deposit 52 

of  discount 52 

of  exchange 52 

of  issue 52 

history  of 53 

of  Greece 53 

of  Amsterdam 53 

of  England 55 

of  the  United  States  ...  56 

of  North  America .     ...  57 

first  Bank  of  United  States,  57 
second    Bank    of     United 

States 59 

State  banks 60 

objections  to 61 

charters  of 62 

confidence  in 62 

supervision  of 63 

control  of 63,  65 

change  of 64 

tax  of 64 

Savings  banks 66 

object  of 67 

under  general  laws    ...  68 

charters .'  68 

deposits 68 

management  of     ....  68 

post-office  savings  bonks    .  6q 


Page 

National  banlcs 70 

corporate  powers  ....  70 

organization 70 

stockholders 71 

capital  stock 71 

surplus 72 

directors 73 

deposits  of  bonds  ....  74 

circulating  notes   ....  75 

redemption  of  notes  ...  76 

loans 76 

statements 77 

as  depositories   of    public 

money 77 

bank  notes 83 

Barter 24,  42 

Betterments 90 

Bondliolders 115 

Book  accounts 83 

Business  manago' 117 

Capital,  quick 4 

permanent 4 

productive 4 

unproductive 4 

of  Indians 19 

of  fisherman 19 

of  farmer 20 

increase  of 20 

political  bkirometer    ...  24 

of  banks 74 

income  from 113 

dividends  on 114 

Capitalist 4 


MI 


142 


INDEX. 


Carpenter ii 

Cashier's  draft 86 

Certificate  of  deposit    ,    ...  86 

Checks 85 

certified 85 

Climate,  influence  on  capital      .  22 

Cloth,  free 36 

duty  on 36 

Coinage,  by  Lydians  and  Ro- 
mans      45 

debasing  of 46 

theory  of 51 

Cost 2 

Court  of  arbitration      ....  125 

Credit  as  a  medium  of  exchange,  89 
Currency,  influence  on  the  price 

of  labor 122 

Customs 26 

Deposit,  bank  of 52 

certificate  of 86 

Deposits,  loaning  of    .     .     .   54, 66 

interest  on 66 

Destruction  of  bank  notes     .    .  76 

Directors  of  banks 73 

Discount 52 

bank  of 52 

Dollar 48 

weight  of 50 

coinage  of 51 

Drafts 87 

cashier's 86 

Drawee 85 

Drawer 85 

Duty,  specific 26 

ad  valorem 26 

Eagle,  weight  of 50 

Electricity  as  a  motive  power    .  1 5 

Engine 15 


Exchange 85 

bank  of 52 

Exporters le 

Exports 15 

Farmer 10 

Free  banking 71 

Free  trade 28 

Gold,  as  a  standard    ....  49 

in  California 49 

Government,  influence  of  capi- 
tal      23 

Gravitation .  14 

Holder 85 

Horse 13 

Importers 26 

Imports 26 

Inhabitants 22 

Interest 93 

in  savings  banks  ....  67 

compound 67 

immoral 93 

illegal 93 

Iron,  duty  on 37 

Issue,  bank  of 52 

Labor 3 

division  of 9 

kinds  of 121 

associations no 

managers  of iro 

failures  of 113 

commission 125 

difficulties 124 

Legal  tenders 75 

Loans 76 

Location,  influence  on  capital   .    21 

element  of  rent 92 

Lumber,  duty  on 37 

Luxuries,  taxation  of  .    .    .  32,  33 


INDEX. 


143 


Machinery 16 

Maker  of  note 85 

Markets 25 

Measure 42,43 

Merchant 26 

Money 2 

substances  used  for    .    .     .  42 

essential  qualities  of  .    .    .  43 

gold  and  silver  as  ....  44 

coinage  of 45 

Motive  power 13 

of  domestic  animals  ...  13 

of  water 14 

of  steam 15 

of  electricity 15 

Mule 13 

Ox 13 

Payee 85 

Political  economy i 

Politics I 

Price 3 

Productiveness 91 

Profit 102 

distinguished  from  what     .  102 

gross  and  net 103 

of  corporations      .    .    .    .104 

amount  of 104 

distribution  of 106 

Promissory  note 84 

Protection 34 

modified  theory  of     ...  39 

Redemption  of  bank  notes    .  76 

Rent 89 

Retailer 26 

Ricardo 9<> 

Savings  Banks.    See  Banks. 

Seigniorage 5' 

Shoemaker n 


Silver  as  a  standard 48 

in  Nevada 49 

Soil,  nature  of 3i 

Specie 83 

Statements  of  banks    ....  77 

Steam  as  a  motive  power    .    .  15 

Sugar,  duty  on 38 

Tailor 10 

Tariff 26 

for  revenue 32 

Taxation  necessary 32 

reason  for 96 

of  persons 97 

of  property 98 

direct 98 

of  wealth 99 

of  capital 99 

of  income 99 

indirect 100 

during  civil  war    .    .    .    .101 

Taxes  of  banks 77 

Tools 17 

Trade 24 

Traders 25 

Treasury  notes 7^,  83 

Utility a 

Value 3 

Wages 119 

Water 2 

as  a  motive  power     ...  14 

Wealth,  of  savages 5 

of  shepherds 6 

of  farmers 8 

Wholesale 2'^' 

Wind  as  a  motive  power  .    .    .  14 

Worth 2 

Yardstick 46 


(f 


Date  Due 

#»i  4  1* 

* 

I 

Library  Bureau  Cal.  No.  1137 


